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Estimating the reservation wage across city groups in Colombia: A stochastic frontier approach

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  • Luz A. Florez
  • Ligia Alba Melo-Becerra
  • Carlos Esteban Posada

Abstract

We use the stochastic frontier approach to estimate the reservation wage across different city groups in Colombia. We use the information of GEIH from 2008-2019 of 23 urban cities. We find empirical evidence in favour of the search theory predictions that suggest a positive relation of the reservation wage with the level of education and with the net family labour income. We also find a gender gap in the reservation wage and explore this gap controlling by the level of education and presence of children in the household. Contrary to the results found in the literature, we find that the presence of children reduces the reservation wage of women and men. Finally, we found that the reservation wage increases with the level of development and productivity of the cities, however, qualified workers in low-quality cities present higher reservation wages than median quality cities. **** RESUMEN: En este documento usamos el método de frontera estocástica para estimar los salarios de reserva de diferentes grupos de ciudades en Colombia. Usamos la información de la Gran Encuesta Integrada de Hogares (GEIH) para el período 2008-2019 para las 23 principales áreas urbanas. Nuestros resultados empíricos van en línea con los sugerido por los modelos de búsqueda que predicen una relación positiva entre el salario de reserva y el nivel de educación, y también con el ingreso neto laboral del hogar. Adicionalmente, evidenciamos una brecha en el salario de reserva de las mujeres comparado con el de los hombres, incluso controlando por nivel educativo y presencia de niños en el hogar. Contrario a lo encontrado en la literatura, la presencia de niños en el hogar reduce el salario de reserva tanto de los hombres como de las mujeres. Finalmente, encontramos evidencia de una relación positiva entre el nivel de productividad de las ciudades y el salario de reserva, sin embargo, individuos altamente calificados presentan salarios de reserva mayores en las ciudades de baja calidad (productividad) que en ciudades de calidad media (productividad).

Suggested Citation

  • Luz A. Florez & Ligia Alba Melo-Becerra & Carlos Esteban Posada, 2021. "Estimating the reservation wage across city groups in Colombia: A stochastic frontier approach," Borradores de Economia 1163, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1163
    DOI: https://doi.org/10.32468/be.1163
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    More about this item

    Keywords

    Reservation wage; stochastic frontier analysis; labour heterogeneity by cities; salario de reserva; análisis de frontera estocástica; heterogeneidad laboral por ciudades.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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