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What Determines the Reservation Wages of Unemployed Workers? New Evidence From German Micro Data

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  • Eswar Prasad

Abstract

This paper provides new empirical evidence on the relationship between reservation wages of unemployed workers and macroeconomic factors--including the unemployment rate and generosity of the unemployment compensation system--as well as individual-specific determinants, such as human capital proxies and length of unemployment spell. The longitudinal dataset provides an interesting perspective on how reservation wages change over time and how they correlate with accepted wage offers for workers who move from unemployment to employment. The findings shed light on the disincentive effects of the German tax and transfer system for the employment decisions of unemployed workers at different skill levels.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/4.

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Length: 23
Date of creation: 01 Jan 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/4

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Keywords: Unemployment; Labor markets; wage; wages; unemployment compensation; compensation; unemployment duration; employment; unemployed; job search; unemployed workers; benefits; worker; unemployment rate; regional unemployment; unemployment rates; unemployment insurance; wage equations; duration of unemployment; unemployment spell; unemployment problem; labor demand; employed person; wage structure; unemployment spells; aggregate unemployment; unemployment insurance benefits; labor force participants; unemployment benefits; wage rate; skilled labor; unemployment durations; employment search; unemployed worker; unemployment assistance; compensation benefits; local unemployment; aggregate unemployment rate; unemployed youths; employment spell; employment outcomes; male wage; effect of unemployment; wage levels; compensation system; unemployment office; labor income; unemployed persons; unemployment insurance system; wage bargaining;

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References

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  1. Kiefer, Nicholas M & Neumann, George R, 1979. "An Empirical Job-Search Model, with a Test of the Constant Reservation-Wage Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 89-107, February.
  2. Hunt, Jennifer, 1995. "The Effect of Unemployment Compensation on Unemployment Duration in Germany," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 88-120, January.
  3. Gorter, Dirk & Gorter, Cees, 1993. "The Relation between Unemployment Benefits, the Reservation Wage and Search Duration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(2), pages 199-214, May.
  4. Martin Feldstein & James M. Poterba, 1984. "Unemployment Insurance and Reservation Wages," NBER Working Papers 1011, National Bureau of Economic Research, Inc.
  5. Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, vol. 56(222), pages 225-46, May.
  6. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  7. Richard B. Freeman & Ronald Schettkat, 1999. "The Role of Wage and Skill Differences in US-German Employment Differences," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(1+2), pages 49-66, July.
  8. Blau, David M, 1991. "Search for Nonwage Job Characteristics: A Test of the Reservation Wage Hypothesis," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 186-205, April.
  9. Jones, Stephen R G, 1988. "The Relationship between Unemployment Spells and Reservation Wages as a Test of Search Theory," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 741-65, November.
  10. Wolfgang Franz, 1980. "The Reservation Wage of Unemployed Persons in the Federal Republic of Germany: Theory and Empirical Tests," NBER Working Papers 0578, National Bureau of Economic Research, Inc.
  11. Eswar Prasad, 2000. "The Unbearable Stability of the German Wage Structure," IMF Working Papers 00/22, International Monetary Fund.
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Citations

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Cited by:
  1. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
  2. Marco Caliendo & Ludovica Gambaro & Peter Haan, 2007. "The Impact of Income Taxation on the Ratio between Reservation and Market Wages and the Incentives for Labour Supply," Discussion Papers of DIW Berlin 670, DIW Berlin, German Institute for Economic Research.
  3. Sarah Brown & Jenny Roberts & Karl Taylor, 2008. "Reservation Wages, Labour Market Participation And Health," Working Papers 2008002, The University of Sheffield, Department of Economics, revised Feb 2008.
  4. Sarah Brown & Karl Taylor, 2008. "Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data," Working Papers 2008008, The University of Sheffield, Department of Economics, revised Jul 2008.
  5. María Angeles Davia & Oscar D. Marcenaro Gutiérrez, 2008. "Exploring the link between employment search time and reservation," Hacienda Pública Española, IEF, vol. 186(3), pages 91-121, October.
  6. Markus Pannenberg, 2007. "Risk Aversion and Reservation Wages," SOEPpapers on Multidisciplinary Panel Data Research 23, DIW Berlin, The German Socio-Economic Panel (SOEP).
  7. John T. Addison & Mário Centeno & Pedro Portugal, 2004. "Reservation Wages, Search Duration, and Accepted Wages in Europe," Working Papers w200413, Banco de Portugal, Economics and Research Department.
  8. María A. Davia & Óscar D. Marcenaro-Gutiérrez, 2007. "Exploring the link between employment search time and reservation wages in Southern Europe," Economic Working Papers at Centro de Estudios Andaluces E2007/13, Centro de Estudios Andaluces.
  9. Vera A. Adamchik & Josef C. Brada & Arthur E. King, 2009. "Are Transition Economy Workers Underpaid?," Working Papers 278, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).

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