Search, Layoffs, and Reservation Wages
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.
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