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Reservation Wages-Measurement and Determinants: Evidence from the KMP Survey

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  • Richard Walker

Abstract

This paper investigates the difficulties in measuring reservation wages, models the determinants of reservation wages, and compares reservation wages with predicted wages. Data is drawn from the Khayelitsha/Mitchell's Plain (KMP) survey. Certain factors (e.g. education, labour market status, household income and duration of unemployment) are significant in explaining variation in reservation wages. Importantly, a person's position in the labour market is not as a result of his/her reservation wage. Rather, reservation wages are a function of his/her labour market status: while those in wage-employment report a reservation wage based more on perceived labour market value, those in unemployment report a reservation wage influenced strongly by subsistence requirements. This study concludes that voluntary unemployment does not exist in KMP, with people in general reporting reservation wages well below what they could expect to earn.

Suggested Citation

  • Richard Walker, 2003. "Reservation Wages-Measurement and Determinants: Evidence from the KMP Survey," SALDRU/CSSR Working Papers 038, Southern Africa Labour and Development Research Unit, University of Cape Town.
    • Handle: RePEc:ldr:cssrwp:038
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    File URL: https://www.opensaldru.uct.ac.za/handle/11090/632
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    References listed on IDEAS

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    1. Böheim, René, 2002. "The association between reported and calculated reservation wages," ISER Working Paper Series 2002-07, Institute for Social and Economic Research.
    2. Stephan Klasen & Ingrid Woolard, 2009. "Surviving Unemployment Without State Support: Unemployment and Household Formation in South Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 18(1), pages 1-51, January.
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    4. Haroon Bhorat, 2000. "Are Wage Adjustments an Effective Mechanism for Poverty Alleviation?: Some Simulations for Domestic and Farm Workers," Working Papers 00041, University of Cape Town, Development Policy Research Unit.
    5. Anna McCord, 2002. "Public Works as a Response to Labour Market Failure in South Africa," SALDRU/CSSR Working Papers 019, Southern Africa Labour and Development Research Unit, University of Cape Town.
    6. Haroon Bhorat, 2000. "The impact of trade and structural changes on sectoral employment in South Africa," Development Southern Africa, Taylor & Francis Journals, vol. 17(3), pages 437-466.
    7. Jolene Skordis & Matthew Welch, 2004. "Comparing alternative measures of household income: Evidence from the Khayelitsha/Mitchell's plain survey," Development Southern Africa, Taylor & Francis Journals, vol. 21(3), pages 461-481.
    8. Willem Naude & Philip Serumaga-Zake, 2001. "An analysis of the determinants of labour force participation and unemployment in South Africa's North-West province," Development Southern Africa, Taylor & Francis Journals, vol. 18(3), pages 261-278.
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    Cited by:

    1. Khurshid Alam & Sakiba Tasneem & Molla Huq, 2014. "Reservation wage of female volunteer community health workers in Dhaka urban slums: a bidding game approach," Health Economics Review, Springer, vol. 4(1), pages 1-10, December.
    2. Nicoli Nattrass & Richard Walker, 2005. "Unemployment And Reservation Wages In Working‐Class Cape Town," South African Journal of Economics, Economic Society of South Africa, vol. 73(3), pages 498-509, September.
    3. Jasmin Jakoet, 2006. "Assimilation of Immigrants to the Cape Town Labour Market," SALDRU Working Papers 3, Southern Africa Labour and Development Research Unit, University of Cape Town.

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