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Reservation wages, labour market participation and health

  • Sarah Brown
  • Jennifer Roberts
  • Karl Taylor

The concept of the reservation wage has played an important role in labour market theory, particularly in models of job search, labour supply and labour market participation. We focus on the determinants of reservation wages, with a particular focus on health, which has attracted very little attention despite its importance from a policy perspective. Using UK data we estimate an endogenous switching model which predicts reservation wages for the unemployed and market wages for the employed. Our results have important policy implications since they suggest that poor health is a major cause of economic inactivity. Copyright (c) 2010 Royal Statistical Society.

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Article provided by Royal Statistical Society in its journal Journal of the Royal Statistical Society: Series A (Statistics in Society).

Volume (Year): 173 (2010)
Issue (Month): 3 ()
Pages: 501-529

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Handle: RePEc:bla:jorssa:v:173:y:2010:i:3:p:501-529
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