Most theories of involuntary unemployment predict that the equilibrium wage in the labor market will be greater than the reservation wage of the unemployed. Those theories concentrate on explaining why the labor market does not clear, with the market wage falling to the level of the reservation wage, as predicted by the classical paradigm. Relatively little, however, has been said about the behavior of reservation wages. This paper seeks to fill the gap in th literature. We look at the empirical determinants of the reservation wage and suggest what this implies for the evolution of the natural rate of unemployment.
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Paper provided by College Dublin, Department of Political Economy- in its series Papers with number
99/16.
Length: 28 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:dublec:99/16
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Find related papers by JEL classification: J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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