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Great Expectations: Past Wages and Unemployment Durations

Author Info

  • René Böheim
  • Gerard Thomas Horvath
  • Rudolf Winter-Ebmer

Abstract

Decomposing wages into worker and firm wage components, we find that firm-fixed components (firm rents) are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm rents in their wages, they might be mislead about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the infuence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm rents in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2010-09.

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Length: 35 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:jku:econwp:2010_09
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Keywords: Unemployment; Job Search; Overconfidence;

Other versions of this item:

Find related papers by JEL classification:
  • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
  • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Worker overconfidence and unemployment duration
    by Economic Logician in Economic Logic on 2010-09-22 14:05:00
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Cited by:

  1. Michèle A. Weynandt, 2014. "Selective Firing and Lemons," NRN working papers 2014-05, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

This item is featured on the following reading lists or Wikipedia pages:

  1. Economic Logic blog

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