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Search, Layoffs, and Reservation Wages

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  • Wright, Randall D

Abstract

The author analyzes job-search models with random layoffs in which employment opportunities are characterized by a wage and some measure of risk. Intuition suggests that a worker ought to demand a higher wage if he is to accept a job with a higher layoff rate, but this is not true in several models analyzed in the literature. The author demonstrates that assumptions about what happens immediately after a layoff and after a quit are critical in determining the relation between reservation wages and risk. Making these assumptions explicit clarifies the reasons why different models imply quite different predictions. Copyright 1987 by University of Chicago Press.

Suggested Citation

  • Wright, Randall D, 1987. "Search, Layoffs, and Reservation Wages," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 354-365, July.
  • Handle: RePEc:ucp:jlabec:v:5:y:1987:i:3:p:354-65
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    References listed on IDEAS

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    1. Masanori Hashimoto & Ben T. Yu, 1980. "Specific Capital, Employmemt Contracts, and Wage Rigidity," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 536-549, Autumn.
    2. Hayes, Beth, 1984. "Unions and Strikes with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 57-83, January.
    3. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, pages 33-64.
    4. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-257, April.
    5. Michael G. Abbott, 1982. "Specification Tests of Quarterly Econometric Models of Aggregate Strike Frequency in Canada," Working Papers 527, Princeton University, Department of Economics, Industrial Relations Section..
    6. repec:pri:indrel:dsp01k0698750j is not listed on IDEAS
    7. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, pages 1-9.
    8. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    9. Christopher J. Flinn & James J. Heckman, 1982. "Models for the Analysis of Labor Force Dynamics," NBER Working Papers 0857, National Bureau of Economic Research, Inc.
    10. repec:fth:prinin:147 is not listed on IDEAS
    11. Jarrell, Gregg A, 1981. "The Economic Effects of Federal Regulation of the Market for New Security Issues," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 613-675, December.
    12. John G. Cragg & Russell S. Uhler, 1970. "The Demand for Automobiles," Canadian Journal of Economics, Canadian Economics Association, vol. 3(3), pages 386-406, August.
    13. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, pages 225-238.
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    Citations

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    Cited by:

    1. Kopp, Andreas, 1996. "Layoffs, job search and labour market pooling," Kiel Working Papers 729, Kiel Institute for the World Economy (IfW).
    2. Alexandron-Lavon, Anat & Epstein, Gil S. & Lindner Pomerantz, Renana, 2017. "The Effect of Ideological Positions on Job Market Interaction," GLO Discussion Paper Series 141, Global Labor Organization (GLO).
    3. Matteo Richiardi, 2003. "A Search Model of Unemployment and Firm Dynamics," LABORatorio R. Revelli Working Papers Series 30, LABORatorio R. Revelli, Centre for Employment Studies.
    4. Stefan Arent & Wolfgang Nagl, 2011. "The Price of Security: On the Causality and Impact of Lay-off Risks on Wages," ifo Working Paper Series 100, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, pages 733-748.
    6. Hahn, Volker, 2009. "Search, unemployment, and age," Journal of Economic Dynamics and Control, Elsevier, pages 1361-1378.

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