Reservation Wages, Expected Wages and the Duration of Unemployment: Evidence from British Panel Data
AbstractIn this paper we analyse the role of wage expectations in an empirical model of incomplete spells of unemployment and reservation wages. To be specific, we model the duration of unemployment, reservation wages and expected wages simultaneously for a sample of individuals who are not in work, where wage expectations are identified via an exogenous policy shock based upon the introduction of Working Family Tax Credits (WFTC) in the UK. The results from the empirical analysis, which is based on the British Household Panel Survey, suggest that WFTC eligibility served to increase expected wages and that expected wages are positively associated with reservation wages. In addition, incorporating wage expectations into the econometric framework was found to influence the magnitude of the key elasticities: namely the elasticity of unemployment duration with respect to the reservation wage and the elasticity of the reservation wage with respect to unemployment duration.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3981.
Length: 33 pages
Date of creation: Jan 2009
Date of revision:
Publication status: published in: Economics Letters, 2013, 119 (3), 276-279
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Other versions of this item:
- Sarah Brown & Karl Taylor, . "Reservation Wages, Expected wages and the duration of Unemployment: evidence from British Panel data," Working Papers, The University of Sheffield, Department of Economics 2009001, The University of Sheffield, Department of Economics.
- J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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- Daniel Gutknecht, 2013. "Testing for Monotonicity under Endogeneity An Application to the Reservation Wage Function," Economics Series Working Papers 673, University of Oxford, Department of Economics.
- Akiko Maruyama, 2013. "Learning about one's own type: a search model with two-sided uncertainty," GRIPS Discussion Papers 12-24, National Graduate Institute for Policy Studies.
- Cecilia Garavito Masalías, 2010. "Vulnerabilidad en el empleo, género y etnicidad en el Perú," Revista Economía, Departamento de Economía - Pontificia Universidad Católica del Perú, vol. 33(66), pages 89-127.
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