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Reservation Wages: Explaining Some Puzzling Regional Patterns

  • Paolo Sestito
  • Eliana Viviano

We use the Italian Labour Force Survey and the European Household Panel Survey to analyse the distribution of the reservation wages reported by jobseekers. In Italy, reservation wages appear to be higher in the South - the low income and high unemployment area of the country - than in the North and Centre. A similar, rather counterintuitive, pattern, however, can also be found in Finland, France and Spain. First, we show that the way in which these data are commonly collected generates double selection bias. Second, we show that this bias has a strong effect on the estimation of the geographical pattern of reservation wages in many countries. The size of this bias is substantial in Italy. When controlling for it, reservation wages are 10 per cent higher in the North and Centre than in the South.

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File URL: http://hdl.handle.net/10.1111/j.1467-9914.2010.00508.x
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Article provided by CEIS in its journal LABOUR.

Volume (Year): 25 (2011)
Issue (Month): 1 (03)
Pages: 63-88

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Handle: RePEc:bla:labour:v:25:y:2011:i:1:p:63-88
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  1. Ugo Trivellato & Anna Giraldo, 2006. "Assessing the 'Choosiness' of Job-seekers. An Exploratory Approach and Evidence for Italy," LABOUR, CEIS, vol. 20(1), pages 1-36, 03.
  2. 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.
  3. Tito Boeri & Pietro Garibaldi, . "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 2.
  5. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
  6. Harry J. Holzer, 1986. "Reservation Wages and Their Labor Market Effects for Black and White Male Youth," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 157-177.
  7. repec:ese:iserwp:2002-07 is not listed on IDEAS
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