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Reservation Wages, Expected Wages and the Duration of Unemployment: Evidence from British Panel Data

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  • Brown, Sarah

    (University of Sheffield)

  • Taylor, Karl

    (University of Sheffield)

Abstract

In this paper we analyse the role of wage expectations in an empirical model of incomplete spells of unemployment and reservation wages. To be specific, we model the duration of unemployment, reservation wages and expected wages simultaneously for a sample of individuals who are not in work, where wage expectations are identified via an exogenous policy shock based upon the introduction of Working Family Tax Credits (WFTC) in the UK. The results from the empirical analysis, which is based on the British Household Panel Survey, suggest that WFTC eligibility served to increase expected wages and that expected wages are positively associated with reservation wages. In addition, incorporating wage expectations into the econometric framework was found to influence the magnitude of the key elasticities: namely the elasticity of unemployment duration with respect to the reservation wage and the elasticity of the reservation wage with respect to unemployment duration.

Suggested Citation

  • Brown, Sarah & Taylor, Karl, 2009. "Reservation Wages, Expected Wages and the Duration of Unemployment: Evidence from British Panel Data," IZA Discussion Papers 3981, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3981
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    18. repec:eee:labchp:v:1:y:1986:i:c:p:525-602 is not listed on IDEAS
    19. Donald Haurin & Kala Sridhar, 2003. "The impact of local unemployment rates on reservation wages and the duration of search for a job," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1469-1476.
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    Cited by:

    1. Mark Stater & Jeffrey B Wenger, 2017. "The Immediate Hardship of Unemployment: Evidence from the US Unemployment Insurance System," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 17-36, January.
    2. Paweł Strzelecki & Joanna Tyrowicz, 2015. "Inferring the Adequacy of Wage Expectations Among the Non-Working," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 6, pages 51-69.
    3. repec:wrk:warwec:991 is not listed on IDEAS
    4. Cecilia Garavito Masalías, 2010. "Vulnerabilidad en el empleo, género y etnicidad en el Perú," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 33(66), pages 89-127.
    5. Gutknecht, Daniel, 2012. "Do Reservation Wages Decline Monotonically? A Novel Statistical Test," Economic Research Papers 270635, University of Warwick - Department of Economics.
    6. Akiko Maruyama, 2018. "One-sided learning about one fs own type in a two-sided search model: The case of n types of agents," GRIPS Discussion Papers 18-15, National Graduate Institute for Policy Studies.
    7. Akiko Maruyama, 2016. "One-sided learning about one's own type in a two-sided search model," GRIPS Discussion Papers 15-26, National Graduate Institute for Policy Studies.
    8. Daniel Gutknecht, 2013. "Testing for Monotonicity under Endogeneity An Application to the Reservation Wage Function," Economics Series Working Papers 673, University of Oxford, Department of Economics.
    9. Akiko Maruyama, 2013. "Learning about one's own type: a search model with two-sided uncertainty," GRIPS Discussion Papers 12-24, National Graduate Institute for Policy Studies.

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    More about this item

    Keywords

    unemployment duration; reservation wages; expected wages;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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