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Expectations, Reservation Wages And Employment: Evidence From British Panel Data

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Author Info
Sarah Brown ()
Karl Taylor () (Department of Economics, The University of Sheffield)

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Abstract

In this paper, we explore the relationship between expectations and reservation wages for a sample of unemployed individuals using panel data drawn from the British Household Panel Survey, 1996 to 2005. To be specific, we initially investigate the determinants of expectations relating to the individual´s financial situation and employment prospects over the next 12 months. Our findings suggest that job search and education are positively associated with financial optimism and confidence regarding future employment prospects. Conversely, the length of time out of employment and age are associated with pessimistic expectations. Propensity score matching techniques enable us to adopt a quasi experimental approach to ascertain how an individual´s expectations regarding their future financial situation as well as expectations regarding securing future employment influence the setting of reservation wages at the individual level. Optimism over future finances and future job prospects are associated with a higher reservation wage in both the matched and unmatched estimates. Furthermore, confidence over securing future employment is associated with a higher probability of actually gaining employment in the next period.

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File URL: http://www.shef.ac.uk/content/1/c6/08/47/86/SERP2008007.pdf
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File Function: First version, 2008
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File URL: http://www.shef.ac.uk/content/1/c6/08/47/86/SERP2008007.pdf
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Publisher Info
Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2008007.

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Length: 24 pages
Date of creation: May 2008
Date of revision: May 2008
Handle: RePEc:shf:wpaper:2008007

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Related research
Keywords: Employment; Financial Expectations; Reservation Wages;

Find related papers by JEL classification:
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

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Barbara Sianesi, 2001. "Propensity score matching," United Kingdom Stata Users' Group Meetings 2001 12, Stata Users Group, revised 23 Aug 2001. [Downloadable!]
  2. Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Jalan, Jyotsna & Ravallion, Martin, 2003. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity-Score Matching," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 19-30, January.
    Other versions:
  4. Addison, John T. & Centeno, Mário & Portugal, Pedro, 2008. "Unemployment Benefits and Reservation Wages: Key Elasticities from a Stripped-Down Job Search Approach," IZA Discussion Papers 3357, Institute for the Study of Labor (IZA). [Downloadable!]
  5. J. Dominitz & C. F. Manski, . "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty. [Downloadable!]
    Other versions:
  6. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity score matching methods for non-experimental causal studies," Discussion Papers 0102-14, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  7. Sascha O. Becker & Marco Caliendo, 2007. "Sensitivity analysis for average treatment effects," Stata Journal, StataCorp LP, vol. 7(1), pages 71-83, February. [Downloadable!]
  8. Sarah Brown & Stephen Pudney, 2005. "Hours Constraints and In-Work Poverty," Bulletin of Economic Research, Blackwell Publishing, vol. 57(3), pages 305-315, 07. [Downloadable!] (restricted)
  9. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09. [Downloadable!] (restricted)
  10. Blackaby, D.H. & Latreille, P.L. & Murphy, P.D. & O'Leary, N.C. & Sloane, P.J., 2007. "An analysis of reservation wages for the economically inactive," Economics Letters, Elsevier, vol. 97(1), pages 1-5, October. [Downloadable!] (restricted)
    Other versions:
  11. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Blackwell Publishing, vol. 64(4), pages 605-54, October. [Downloadable!] (restricted)
  12. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November. [Downloadable!]
  13. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November. [Downloadable!] (restricted)
  14. Sarah Brown & Karl Taylor, 2006. "Financial expectations, consumption and saving: a microeconomic analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 27(3), pages 313-338, August.
    Other versions:
  15. Edwin Leuven & Barbara Sianesi, 2003. "PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing," Statistical Software Components S432001, Boston College Department of Economics, revised 02 May 2009. [Downloadable!]
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