IDEAS home Printed from https://ideas.repec.org/p/shf/wpaper/2008007.html
   My bibliography  Save this paper

Expectations, Reservation Wages And Employment: Evidence From British Panel Data

Author

Listed:
  • Sarah Brown
  • Karl Taylor

    (Department of Economics, The University of Sheffield)

Abstract

In this paper, we explore the relationship between expectations and reservation wages for a sample of unemployed individuals using panel data drawn from the British Household Panel Survey, 1996 to 2005. To be specific, we initially investigate the determinants of expectations relating to the individual´s financial situation and employment prospects over the next 12 months. Our findings suggest that job search and education are positively associated with financial optimism and confidence regarding future employment prospects. Conversely, the length of time out of employment and age are associated with pessimistic expectations. Propensity score matching techniques enable us to adopt a quasi experimental approach to ascertain how an individual´s expectations regarding their future financial situation as well as expectations regarding securing future employment influence the setting of reservation wages at the individual level. Optimism over future finances and future job prospects are associated with a higher reservation wage in both the matched and unmatched estimates. Furthermore, confidence over securing future employment is associated with a higher probability of actually gaining employment in the next period.

Suggested Citation

  • Sarah Brown & Karl Taylor, 2008. "Expectations, Reservation Wages And Employment: Evidence From British Panel Data," Working Papers 2008007, The University of Sheffield, Department of Economics, revised May 2008.
    • Handle: RePEc:shf:wpaper:2008007
    as

    Download full text from publisher

    File URL: http://www.shef.ac.uk/content/1/c6/08/47/86/SERP2008007.pdf
    File Function: First version, 2008
    Download Restriction: no
    File URL: http://www.shef.ac.uk/content/1/c6/08/47/86/SERP2008007.pdf
    File Function: Revised version, 2008
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John T. Addison & Mário Centeno & Pedro Portugal, 2010. "Unemployment Benefits and Reservation Wages: Key Elasticities from a Stripped‐Down Job Search Approach," Economica, London School of Economics and Political Science, vol. 77(305), pages 46-59, January.
    2. Sascha O. Becker & Marco Caliendo, 2007. "Sensitivity analysis for average treatment effects," Stata Journal, StataCorp LP, vol. 7(1), pages 71-83, February.
    3. Jalan, Jyotsna & Ravallion, Martin, 2003. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity-Score Matching," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 19-30, January.
    4. Blackaby, D.H. & Latreille, P.L. & Murphy, P.D. & O'Leary, N.C. & Sloane, P.J., 2007. "An analysis of reservation wages for the economically inactive," Economics Letters, Elsevier, vol. 97(1), pages 1-5, October.
    5. Edwin Leuven & Barbara Sianesi, 2003. "PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing," Statistical Software Components S432001, Boston College Department of Economics, revised 01 Feb 2018.
    6. Sarah Brown & Gaia Garino & Karl Taylor, 2008. "Mortgages and Financial Expectations: A Household‐Level Analysis," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 857-878, January.
    7. Barbara Sianesi, 2001. "Propensity score matching," United Kingdom Stata Users' Group Meetings 2001 12, Stata Users Group, revised 23 Aug 2001.
    8. J. Dominitz & C. F. Manski, "undated". "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty.
    9. V. Joseph Hotz & Guido W. Imbens & Julie H. Mortimer, 1999. "Predicting the Efficacy of Future Training Programs Using Past Experiences," NBER Technical Working Papers 0238, National Bureau of Economic Research, Inc.
    10. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
    11. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(4), pages 605-654.
    12. Sarah Brown & Karl Taylor, 2006. "Financial expectations, consumption and saving: a microeconomic analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 27(3), pages 313-338, August.
    13. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    14. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-1676, November.
    15. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
    16. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    17. Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank.
    18. Sarah Brown & Gaia Garino & Karl Taylor, 2008. "Mortgages and Financial Expectations: A Household-Level Analysis," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 857-878, January.
    19. Sarah Brown & Gaia Garino & Karl Taylor & Stephen Wheatley Price, 2005. "Debt and Financial Expectations: An Individual- and Household-Level Analysis," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 100-120, January.
    20. Sarah Brown & Stephen Pudney, 2005. "Hours Constraints and In‐Work Poverty," Bulletin of Economic Research, Wiley Blackwell, vol. 57(3), pages 305-315, July.
    21. Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarah Brown & Karl Taylor, 2008. "Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data," Working Papers 2008008, The University of Sheffield, Department of Economics, revised Jul 2008.
    2. Sarah Brown & Karl Taylor, "undated". "Reservation Wages, Expected wages and the duration of Unemployment: evidence from British Panel data," Working Papers 2009001, The University of Sheffield, Department of Economics.
    3. Brown, Sarah & Taylor, Karl, 2011. "Reservation wages, market wages and unemployment: Analysis of individual level panel data," Economic Modelling, Elsevier, vol. 28(3), pages 1317-1327, May.
    4. Tommaso Nannicini, 2007. "Simulation-based sensitivity analysis for matching estimators," Stata Journal, StataCorp LP, vol. 7(3), pages 334-350, September.
    5. Eliana V. Jimenez & Richard P.C. Brown, 2008. "Assessing the poverty impacts of remittances with alternative counterfactual income estimates," Discussion Papers Series 375, School of Economics, University of Queensland, Australia.
    6. Marisa Coetzee, 2013. "Finding the Benefits: Estimating the Impact of The South African Child Support Grant," South African Journal of Economics, Economic Society of South Africa, vol. 81(3), pages 427-450, September.
    7. Jasmin Kantarevic & Boris Kralj, 2013. "Link Between Pay For Performance Incentives And Physician Payment Mechanisms: Evidence From The Diabetes Management Incentive In Ontario," Health Economics, John Wiley & Sons, Ltd., vol. 22(12), pages 1417-1439, December.
    8. Kyoji Fukao & Keiko Ito & Hyeog Ug Kwon & Miho Takizawa, 2008. "Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data," NBER Chapters, in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy, pages 347-389, National Bureau of Economic Research, Inc.
    9. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    10. Githiomi, Caroline & Muriithi, Beatrice & Irungu, Patrick & Mwungu, Chris M. & Diiro, Gracious & Affognon, Hippolyte & Mburu, John & Ekesi, Sunday, 2019. "Economic analysis of spillover effects of an integrated pest management (IPM) strategy for suppression of mango fruit fly in Kenya," Food Policy, Elsevier, vol. 84(C), pages 121-132.
    11. Richard Blundell & Monica Costa Dias, 2009. "Alternative Approaches to Evaluation in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 44(3).
    12. Stephan, Gesine & Pahnke, André, 2008. "The Relative Effectiveness of Selected Active Labour Market Programmes and the Common Support Problem," IZA Discussion Papers 3767, Institute of Labor Economics (IZA).
    13. Guido W. Imbens, 2004. "Nonparametric Estimation of Average Treatment Effects Under Exogeneity: A Review," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 4-29, February.
    14. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
    15. Gashaw Tadesse Abate & Gian Nicola Francesconi & Gian Nicola Francesconi, 2013. "Impact of agricultural cooperatives on smallholders' technical efficiency: evidence from Ethiopia," Euricse Working Papers 1350, Euricse (European Research Institute on Cooperative and Social Enterprises).
    16. Sarah Brown & Mark N. Harris & Christopher Spencer & Karl Taylor, 2024. "Financial Expectations and Household Consumption: Does Middle‐Inflation Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 741-768, June.
    17. Borra, Cristina & Iacovou, Maria & Sevilla, Almudena, 2012. "The effect of breastfeeding on children's cognitive and noncognitive development," Labour Economics, Elsevier, vol. 19(4), pages 496-515.
    18. Abate, G. T., 2013. "Impact of agricultural cooperatives on smallholders\u2019 technical efficiency: evidence from Ethiopia," IWMI Working Papers H045831, International Water Management Institute.
    19. Joseph Capuno & Ma. Garcia, 2010. "Can Information about Local Government Performance Induce Civic Participation? Evidence from the Philippines," Journal of Development Studies, Taylor & Francis Journals, vol. 46(4), pages 624-643.
    20. Deschamps-Laporte, Jean-Philippe, 2013. "The impact of extension services on farming households in Western Kenya: A propensity score approach," Working Papers 2013:5, Örebro University, School of Business, revised 10 Jun 2013.

    More about this item

    Keywords

    Employment; Financial Expectations; Reservation 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:shf:wpaper:2008007. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mike Crabtree (email available below). General contact details of provider: https://edirc.repec.org/data/desheuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.