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

Author

Listed:
  • Sarah Brown
  • Karl Taylor

    (Department of Economics, The University of Sheffield)

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.

Suggested Citation

  • Sarah Brown & Karl Taylor, 2008. "Expectations, Reservation Wages And Employment: Evidence From British Panel Data," Working Papers 2008007, The University of Sheffield, Department of Economics, revised May 2008.
  • Handle: RePEc:shf:wpaper:2008007
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    File URL: http://www.shef.ac.uk/content/1/c6/08/47/86/SERP2008007.pdf
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    File URL: http://www.shef.ac.uk/content/1/c6/08/47/86/SERP2008007.pdf
    File Function: Revised version, 2008
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    References listed on IDEAS

    as
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    4. 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.
    5. 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 01 Feb 2018.
    6. Sarah Brown & Gaia Garino & Karl Taylor, 2008. "Mortgages and Financial Expectations: A Household‐Level Analysis," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 857-878, January.
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    8. J. Dominitz & C. F. Manski, "undated". "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.
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    12. 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.
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    17. 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.
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    More about this item

    Keywords

    Employment; Financial Expectations; Reservation Wages;
    All these keywords.

    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

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