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Reservation Wages and the Duration of Unemployment

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  • Alexandra Heath

    (Reserve Bank of Australia)

  • Troy Swann

    (Reserve Bank of Australia)

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    Abstract

    This paper investigates those factors which affect the duration of unemployment of Australian job seekers. The analysis uses data on individual job seekers from the Survey of Employment and Unemployment Patterns (SEUP) to assess the influence of a comprehensive array of personal and background characteristics on the duration of unemployment. The data set also provides job seekers’ responses concerning their minimum acceptable (or reservation) wage. The results suggest that around one-fifth of adult unemployed job seekers would be willing to work for a wage less than the legal minimum. It is also found that a job seekers’ reservation wage has little effect on his/her unemployment duration. Instead, the binding constraint for job seekers appears to be that they receive very few job offers. Although legal minimum wages could be part of the story, more research is required to properly understand their role in the dynamics of the labour market.

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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp1999-02.

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    Date of creation: Jan 1999
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    Handle: RePEc:rba:rbardp:rdp1999-02

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    Related research

    Keywords: reservation wage; unemployment duration; minimum wage;

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    Cited by:
    1. repec:ese:iserwp:2002-07 is not listed on IDEAS
    2. Björn Christensen, 2003. "Selektionsverzerrungen, erfragte Reservationslöhne und Arbeitslosigkeitsdauer," Kiel Working Papers 1162, Kiel Institute for the World Economy.
    3. Jeff Borland, 2000. "Disaggregated Models of Unemployment in Australia," Melbourne Institute Working Paper Series wp2000n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. Marit Rõõm, 2003. "Reservation wages in Estonia," Labor and Demography 0303001, EconWPA.

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