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Reservation wages and labor supply

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  • Kesternich, Iris
  • Schumacher, Heiner
  • Siflinger, Bettina
  • Valder, Franziska

Abstract

Survey measures of the reservation wage may reflect both the consumption-leisure trade-off and job market prospects (the arrival rate of job offers and the wage distribution). We examine what a survey measure of the reservation wage reveals about an individual’s willingness to trade leisure for consumption. To this end, we combine the reservation wage measure from a large labor market survey with the reservation wage for a one-hour job that we elicit in an online experiment. The two measures show a strong positive association. For unemployed individuals, the experimental reservation wage increases on average by around one Euro for every Euro increase in the survey measure. For employed individuals, the association between the two measures is weaker and depends on their occupation-specific risk of unemployment. We show that these results are robust to selection into the experiment, and that demographic variables have a similar influence on both reservation wage measures.

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  • Kesternich, Iris & Schumacher, Heiner & Siflinger, Bettina & Valder, Franziska, 2022. "Reservation wages and labor supply," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 583-607.
    • Handle: RePEc:eee:jeborg:v:194:y:2022:i:c:p:583-607
    DOI: 10.1016/j.jebo.2021.12.031
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    Cited by:

    1. Kesternich, Iris & Schumacher, Heiner & Siflinger, Bettina & Schwarz, Stefan, 2021. "Money or meaning? Labor supply responses to work meaning of employed and unemployed individuals," European Economic Review, Elsevier, vol. 137(C).
    2. Stüber, Heiko & Dauth, Wolfgang & Eppelsheimer, Johann, 2023. "A guide to preparing the sample of integrated labour market biographies (SIAB, version 7519 v1) for scientific analysis," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 57, pages 1-7.

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    More about this item

    Keywords

    Reservation wage; Labor supply; Search; Validation of survey measures;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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