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The Reservation Wage Unemployment Duration Nexus

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  • John T. Addison
  • José A. F. Machado
  • Pedro Portugal

Abstract

A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a natural control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent. For its part, the completed duration coefficient suggests that higher reservation wages negatively influence the probability of exiting unemployment.
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Suggested Citation

  • John T. Addison & José A. F. Machado & Pedro Portugal, 2013. "The Reservation Wage Unemployment Duration Nexus," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(6), pages 980-987, December.
    • Handle: RePEc:bla:obuest:v:75:y:2013:i:6:p:980-987
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    File URL: http://hdl.handle.net/10.1111/j.1468-0084.2012.00717.x
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    1. Kiefer, Nicholas M & Neumann, George R, 1979. "An Empirical Job-Search Model, with a Test of the Constant Reservation-Wage Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 89-107, February.
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    Cited by:

    1. Alan G. Isaac, 2019. "Exploring the Social-Architecture Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 565-589, October.
    2. Hila Axelrad & Israel Luski & Miki Malul, 2017. "Reservation Wages and the Unemployment of Older Workers," Journal of Labor Research, Springer, vol. 38(2), pages 206-227, June.
    3. Otterby, Dawn & Crawley, Andrew & Gabe, Todd, 2023. "Effects of the Minimum Wage on U.S. County Labor Markets," MPRA Paper 116162, University Library of Munich, Germany.
    4. Vassilis Monastiriotis & Angelo Martelli, 2021. "Crisis, Adjustment and Resilience in the Greek Labor Market: An Unemployment Decomposition Approach," International Regional Science Review, , vol. 44(1), pages 85-112, January.
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    6. Deschacht, Nick & Vansteenkiste, Sarah, 2021. "The effect of unemployment duration on reservation wages: Evidence from Belgium," Labour Economics, Elsevier, vol. 71(C).
    7. Krzysztof Bartosik & Jerzy Mycielski, 2016. "Dynamika płac a długotrwałe bezrobocie w polskiej gospodarce," Bank i Kredyt, Narodowy Bank Polski, vol. 47(5), pages 435-462.
    8. Leppin Julian S., 2014. "The Estimation of Reservation Wages: A Simulation-Based Comparison," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(5), pages 603-634, October.
    9. Gutknecht, Daniel, 2012. "Do Reservation Wages Decline Monotonically? A Novel Statistical Test," Economic Research Papers 270635, University of Warwick - Department of Economics.
    10. 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.
    11. Nordlund, Madelende & Strandh, Mattias, 2014. "The relation between economic and non-economic incentives to work and employment chances among the unemployed," Working Paper Series 2014:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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