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The Reservation Wage of Unemployed Persons in the Federal Republic of Germany: Theory and Empirical Tests

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  • Wolfgang Franz

Abstract

This study examines the determinants of the reservation wage of unemployed persons in the Federal Republic of Germany in 1976. The theoretical section presents the derivation of an optimal reservation wage and shows the source of an ambiguity of some explanatory variables. The data basis are unemployed persons leaving the unemployment register within a given sample week. For a subset of them, we know their reservation wage and a set of personal characteristics. Other variables, such as the wage offer distribution and demand side variables, are obtained by employing other data. Methodological problems, such as as a sample selection bias, are taken into account. As a result, individual characteristics and the wage offer distribution are dominant causes of the reservation wage, but demand side variables and the entitlement to unemployment compensation play minor roles.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0578.

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Date of creation: Nov 1980
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Publication status: published as Franz, W. and K. Konig. "The Nature And Causes Of Unemployment In The Federal Republic Of Germany Since The 1970s: An Empirical Investigation," Economica, 1986, v53(210S), S219-S244
Handle: RePEc:nbr:nberwo:0578

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  1. Stephen W. Salant, 1974. "Search theory and duration data: a theory of sorts," Special Studies Papers 42, Board of Governors of the Federal Reserve System (U.S.).
  2. Hicks, J. R., 1975. "Value and Capital: An Inquiry into some Fundamental Principles of Economic Theory," OUP Catalogue, Oxford University Press, edition 2, number 9780198282693, September.
  3. Steven H. Sandell, 1980. "Job search by unemployed women: Determinants of the asking wage," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(3), pages 368-378, April.
  4. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  5. Spence, Michael & Zeckhauser, Richard J, 1972. "The Effect of the Timing of Consumption Decisions and the Resolution of Lotteries on the Choice of Lotteries," Econometrica, Econometric Society, vol. 40(2), pages 401-03, March.
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  8. Burdett, Kenneth, 1979. "Unemployment Insurance Payments as a Search Subsidy: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 333-43, July.
  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  10. Danforth, John P., 1977. "Wealth and the value of generalized lotteries," Journal of Economic Theory, Elsevier, vol. 15(1), pages 54-71, June.
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  12. John M. Barron & Otis W. Gilley, 1979. "The effect of unemployment insurance on the search process," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 32(3), pages 363-366, April.
  13. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  14. Wolfgang Franz, 1979. "The Duration of Youth Unemployment in West Germany: Some Theoretical Considerations," NBER Working Papers 0397, National Bureau of Economic Research, Inc.
  15. Feinberg, Robert M, 1977. "Risk Aversion, Risk, and the Duration of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 59(3), pages 264-71, August.
  16. Burdett, Kenneth & Mortensen, Dale T, 1980. "Search, Layoffs, and Labor Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 652-72, August.
  17. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
  18. Mellow, Wesley, 1978. "Search Costs and the Duration of Unemployment," Economic Inquiry, Western Economic Association International, vol. 16(3), pages 423-30, July.
  19. Gronau, Reuben, 1971. "Information and Frictional Unemployment," American Economic Review, American Economic Association, vol. 61(3), pages 290-301, June.
  20. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
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Cited by:
  1. Constant, Amelie & Krause, Annabelle & Rinne, Ulf & Zimmermann, Klaus F, 2011. "Reservation Wages of First and Second Generation Migrants," CEPR Discussion Papers 8208, C.E.P.R. Discussion Papers.
  2. Björn Christensen, 2001. "The Determinants of Reservation Wages in Germany Does a Motivation Gap Exist?," Kiel Working Papers 1024, Kiel Institute for the World Economy.
  3. Prasad, Eswar, 2003. "What Determines the Reservation Wages of Unemployed Workers? New Evidence from German Micro Data," IZA Discussion Papers 694, Institute for the Study of Labor (IZA).
  4. Humpert, Stephan & Pfeifer, Christian, 2013. "Explaining age and gender differences in employment rates : a labor supply side perspective," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 46(1), pages 1-17.
  5. Hans H. Glismann & Klaus Schrader, 2000. "Zur Reform der deutschen Arbeitslosenversicherung � Probleme und Lösungsansätze in der deutschen Literatur," Kiel Working Papers 995, Kiel Institute for the World Economy.
  6. Maani Sholeh, 1983. "La Duración del Desempleo y el Salario de Reserva de Varones Desempleados: El Caso Chileno," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 20(59), pages 101-112.
  7. John Davis & Patrick Minford, 1986. "Germany and the European disease," International Finance Discussion Papers 296, Board of Governors of the Federal Reserve System (U.S.).

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