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Reservation Wages and the Duration of Unemployment


  • Alexandra Heath

    (Reserve Bank of Australia)

  • Troy Swann

    (Reserve Bank of Australia)


This paper investigates those factors which affect the duration of unemployment of Australian job seekers. The analysis uses data on individual job seekers from the Survey of Employment and Unemployment Patterns (SEUP) to assess the influence of a comprehensive array of personal and background characteristics on the duration of unemployment. The data set also provides job seekers’ responses concerning their minimum acceptable (or reservation) wage. The results suggest that around one-fifth of adult unemployed job seekers would be willing to work for a wage less than the legal minimum. It is also found that a job seekers’ reservation wage has little effect on his/her unemployment duration. Instead, the binding constraint for job seekers appears to be that they receive very few job offers. Although legal minimum wages could be part of the story, more research is required to properly understand their role in the dynamics of the labour market.

Suggested Citation

  • Alexandra Heath & Troy Swann, 1999. "Reservation Wages and the Duration of Unemployment," RBA Research Discussion Papers rdp1999-02, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp1999-02

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    References listed on IDEAS

    1. Chris Ryan & Christopher Thompson, 2000. "Inflation Targeting and Exchange Rate Fluctuations in Australia," RBA Research Discussion Papers rdp2000-06, Reserve Bank of Australia.
    2. Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the Determinants of Inflation in Australia," RBA Research Discussion Papers rdp2001-02, Reserve Bank of Australia.
    3. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    4. Laurence Ball, 2002. "Policy Rules and External Shocks," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 3, pages 047-064 Central Bank of Chile.
    5. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    6. Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the determinants of inflation in Australia," BIS Papers chapters,in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 1-28 Bank for International Settlements.
    7. Dwyer, Jacqueline & Kent, Christopher & Pease, Andrew, 1994. "Exchange Rate Pass-Through: Testing the Small Country Assumption for Australia," The Economic Record, The Economic Society of Australia, vol. 70(211), pages 408-423, December.
    8. David Gruen, 2000. "Introduction to The Australian Economy in the 1990s," RBA Annual Conference Volume,in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.
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    Cited by:

    1. Christensen, Björn, 2003. "Selektionsverzerrungen, erfragte Reservationslöhne und Arbeitslosigkeitsdauer," Kiel Working Papers 1162, Kiel Institute for the World Economy (IfW).
    2. Christensen, Björn, 2001. "The Determinants of Reservation Wages in Germany Does a Motivation Gap Exist?," Kiel Working Papers 1024, Kiel Institute for the World Economy (IfW).
    3. Böheim, René, 2002. "The association between reported and calculated reservation wages," ISER Working Paper Series 2002-07, Institute for Social and Economic Research.
    4. Nordlund, Madelende & Strandh, Mattias, 2014. "The relation between economic and non-economic incentives to work and employment chances among the unemployed," Working Paper Series 2014:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    5. Marit Rõõm, 2003. "Reservation wages in Estonia," Labor and Demography 0303001, EconWPA.
    6. Jeff Borland, 2000. "Disaggregated Models of Unemployment in Australia," Melbourne Institute Working Paper Series wp2000n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

    More about this item


    reservation wage; unemployment duration; minimum wage;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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