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Strategic Unemployment

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Author Info
Julia Angerhausen
Christian Bayer
Burkhard Hehenkamp

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Abstract

We propose a dynamic model that explains why individuals may be reluctant to pick up work although the wage is above their reservation wage. Accepting low paid work will put them in an adverse position in future wage bargaining, as employers could infer the individual.s low reservation wage from his working history. Employers will exploit their knowledge o¤ering low wages to this individual in the future. Therefore, employees with low reservation wage strategically opt into unemployment to signal a high reservation wage.

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Paper provided by University of Dortmund, Department of Economics in its series Discussion Papers in Economics with number 06_02.

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Length: 23 pages
Date of creation: Jul 2006
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Handle: RePEc:mik:wpaper:06_02

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  1. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 55(4), pages 509-40, October. [Downloadable!] (restricted)
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  2. Bruno Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
  4. Moore, John, 1985. "Optimal Labour Contracts When Workers Have a Variety of Privately Observed Reservation Wages," Review of Economic Studies, Blackwell Publishing, vol. 52(1), pages 37-67, January. [Downloadable!] (restricted)
  5. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Blackwell Publishing, vol. 50(1), pages 3-35, January. [Downloadable!] (restricted)
  6. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February. [Downloadable!] (restricted)
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