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Wage Aspirations and Unemployment Persistence

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  • Vincent Hogan

    (University College Dublin)

Abstract

The reservation wage is an integral part of most theories of involuntary unemployment. We use panel data to examine the empirical determinants of the reservation wage - in particular the influence of previous wages - and consider what this implies for the evolution of the natu- ral rate of unemployment. We find that previous wages have a significant but relatively small effect on reservation wages (an elasticity between 0.15 and 0.47). We also find considerable differences across genders with previous wages being more important for men and market wages being more important for women. Overall our results suggest that unemployment will adjust relatively quickly to shocks.

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File URL: http://www.ucd.ie/economics/research/papers/2003/WP03.10.pdf
File Function: First version, 2003
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200310.

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Length: 25 pages
Date of creation: 13 Apr 2003
Date of revision:
Handle: RePEc:ucn:wpaper:200310

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Postal: UCD, Belfield, Dublin 4
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Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics
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Keywords: Unemployment Duration; Wages;

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References

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  1. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Hans Bloemen & Elena Stancanelli, 2001. "Individual Wealth, Reservation Wages, and Transitions into Employment," Sciences Po publications info:hdl:2441/9704, Sciences Po.
  3. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-68, July.
  4. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  5. Martin Feldstein & James M. Poterba, 1984. "Unemployment Insurance and Reservation Wages," NBER Working Papers 1011, National Bureau of Economic Research, Inc.
  6. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  7. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
  8. Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, vol. 56(222), pages 225-46, May.
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Citations

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Cited by:
  1. Sven Schreiber, 2009. "Explaining shifts in the unemployment rate with productivity slowdowns and accelerations: a co-breaking approach," Kiel Working Papers 1505, Kiel Institute for the World Economy.
  2. Leland D. Crane, 2014. "Firm Dynamics and Assortative Matching," Working Papers 14-25, Center for Economic Studies, U.S. Census Bureau.
  3. Marco Caliendo & Ludovica Gambaro & Peter Haan, 2009. "The impact of income taxation on the ratio between reservation and market wages and the incentives for labour supply," Applied Economics Letters, Taylor & Francis Journals, vol. 16(9), pages 877-883.
  4. Brown, Sarah & Taylor, Karl, 2011. "Reservation wages, market wages and unemployment: Analysis of individual level panel data," Economic Modelling, Elsevier, vol. 28(3), pages 1317-1327, May.
  5. René Böheim & Gerard Thomas Horvath & Rudolf Winter-Ebmer, 2010. "Great Expectations: Past Wages and Unemployment Durations," NRN working papers 2010-07, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  6. Brown, Sarah & Taylor, Karl, 2013. "Reservation wages, expected wages and unemployment," Economics Letters, Elsevier, vol. 119(3), pages 276-279.
  7. Sarah Brown & Jennifer Roberts & Karl Taylor, 2010. "Reservation wages, labour market participation and health," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 173(3), pages 501-529.
  8. Xavier Raurich & Valeri Sorolla, 2008. "A General Framework for Growth Models with Non-Competitive Labor and Product Markets and Disequilibrium Unemployment," Working Papers 369, Barcelona Graduate School of Economics.
  9. Tripier, Fabien, 2006. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2749-2774, December.
  10. Babcock, Linda & Congdon, William J & Katz, Lawrence F. & Mullainathan, Sendhil, 2012. "Notes on Behavioral Economics and Labor Market Policy," Scholarly Articles 11870387, Harvard University Department of Economics.
  11. Benjamín Villena Roldán, 2010. "Aggregate Implications of Employer Search and Recruiting Selection," Documentos de Trabajo 271, Centro de Economía Aplicada, Universidad de Chile.
  12. Xavier Raurich (Universitat de Barcelona) & Valeri Sorolla (Universitat Autonoma de Barcelona), 2012. "Growth Models with Exogenous Saving Rates, Unemployment and Wage Inertia," Working Papers in Economics 287, Universitat de Barcelona. Espai de Recerca en Economia.
  13. Sarah Brown & Karl Taylor, 2008. "Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data," Working Papers 2008008, The University of Sheffield, Department of Economics, revised Jul 2008.

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