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Great Expectations: Past Wages and Unemployment Durations

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  • René Böheim
  • Gerard Thomas Horvath
  • Rudolf Winter-Ebmer

Abstract

Decomposing wages into worker and firm wage components, we find that firm-fixed components (firm rents) are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm rents in their wages, they might be mislead about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the infuence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm rents in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.

Suggested Citation

  • René Böheim & Gerard Thomas Horvath & Rudolf Winter-Ebmer, 2010. "Great Expectations: Past Wages and Unemployment Durations," NRN working papers 2010-07, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:nrnwps:2010_07
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    1. Worker overconfidence and unemployment duration
      by Economic Logician in Economic Logic on 2010-09-22 19:05:00

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    Cited by:

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    4. Paweł Strzelecki & Joanna Tyrowicz, 2015. "Inferring the Adequacy of Wage Expectations Among the Non-Working," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 6, pages 51-69.
    5. Pritadrajati, Dyah S. & Kusuma, Anggita C.M. & Saxena, Sweta C., 2021. "Scarred for life: Lasting consequences of unemployment and informal self-employment," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 206-219.
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    7. Dyah S. Pritadrajati & Anggita C. M. Kusuma & Sweta C. Saxena, 2020. "A Non-Healing Wound: Lasting Consequences Of Unemployment And Informal Self-Employment: An Empirical Evidence From Indonesia," Working Papers WP/09/2020, Bank Indonesia.
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    More about this item

    Keywords

    Unemployment; Job Search; Overconfidence;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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