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Reservation Wages and the Cost of Unemployment


  • Jones, Stephen R G


This paper studies direct evidence on reservation wages reported in Great Britain in 1982 to assess (1) whether such asking prices are "high" and (2) whether variations in these reservation wages are related to differences in measures of the subjective and objective costs of unemployment. A majority overall (and for various subgroups) reports reservation wages no higher than own past wages adjusted for earnings growth, but there is nonetheless considerable dispersion in the ratio of reservation to past wages. Reservation wages are somewhat related to measures of the differential cost of unemployment, most clearly for men, although the independent role of benefits is often imprecisely measured. However, exactly which of these costs matter differs significantly according to whether the separation from last employment was voluntary or involuntary. Copyright 1989 by The London School of Economics and Political Science.

Suggested Citation

  • Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, vol. 56(222), pages 225-246, May.
  • Handle: RePEc:bla:econom:v:56:y:1989:i:222:p:225-46

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    References listed on IDEAS

    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    2. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Luttmer Erzo F.P., 2007. "Does the Minimum Wage Cause Inefficient Rationing?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-42, October.
    2. repec:ere:journl:v:xxxvi:y:2017:i:2:p:185-228 is not listed on IDEAS
    3. John T. Addison & Mário Centeno & Pedro Portugal, 2004. "Reservation Wages, Search Duration, and Accepted Wages in Europe," Working Papers w200413, Banco de Portugal, Economics and Research Department.
    4. Felsenstein, Daniel & Fleischer, Aliza, 1999. "Capital Assistance and Small Firm Growth: Implications for Regional Economic Welfare," ERSA conference papers ersa99pa395, European Regional Science Association.
    5. Katarzyna Budnik, 2012. "Do those who stay work less? On the impact of emigration on the measured TFP in Poland," NBP Working Papers 113, Narodowy Bank Polski, Economic Research Department.
    6. 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).
    7. repec:iab:iabmit:v:36:i:4:p:573-598 is not listed on IDEAS
    8. Stephan Humpert & Christian Pfeifer, 2011. "Explaining Age and Gender Differences in Employment Rates: A Labor Supply Side Perspective," Working Paper Series in Economics 214, University of Lüneburg, Institute of Economics.
    9. Piekkola, Hannu, 2006. "Tax cuts and employment: Evidence from Finnish linked employer-employee data," Discussion Papers 1041, The Research Institute of the Finnish Economy.
    10. Madhu Mohanty, 2005. "An alternative method of estimating the worker's reservation wage," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 501-522.
    11. Laurence Rioux, 2001. "Salaire de réserve, allocation chômage dégressive et revenu minimum d'insertion," Économie et Statistique, Programme National Persée, vol. 346(1), pages 137-160.
    12. Donald Haurin & Kala Sridhar, 2003. "The impact of local unemployment rates on reservation wages and the duration of search for a job," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1469-1476.
    13. Brown, Sarah & Taylor, Karl, 2015. "The reservation wage curve: Evidence from the UK," Economics Letters, Elsevier, vol. 126(C), pages 22-24.
    14. Hogan, Vincent, 2004. "Wage aspirations and unemployment persistence," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1623-1643, November.
    15. Stancanelli, E.G.F., 1994. "The unemployed's financial resources and the probality of re-employment," Serie Research Memoranda 0047, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    16. Timothy J. Bartik, "undated". "What Should the Federal Government Be Doing About Urban Economic Development?," Upjohn Working Papers and Journal Articles tjb1994c, W.E. Upjohn Institute for Employment Research.
    17. David Castro Lugo, 2006. "Curva salarial: una aplicación para el caso de México, 1993-2002," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 233-273.
    18. Timothy J. Bartik, 1999. "Federal Policy Toward State and Local Economic Development in the 1990s," Book chapters authored by Upjohn Institute researchers,in: RD Norton (ed.), The Millennial City: Classic Readings on U.S. Urban Policy, volume 12, pages 235-251 W.E. Upjohn Institute for Employment Research.
    19. Christensen, Björn, 2003. "Anspruchslohn und Arbeitslosigkeit in Deutschland (Reservation wage and unemployment in Germany)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 573-598.
    20. Liina Malk, 2015. "Determinants of reservation wages: empirical evidence for Estonia," Bank of Estonia Working Papers wp2014-8, Bank of Estonia, revised 20 Jan 2015.
    21. Timothy J. Bartik, 2013. "Social Costs of Jobs Lost Due to Environmental Regulations," Upjohn Working Papers and Journal Articles 13-193, W.E. Upjohn Institute for Employment Research.
    22. Sridhar, Kala Seetharam, 2004. "Impact of the enterprise zone," Working Papers 04/19, National Institute of Public Finance and Policy.

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