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Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data

  • Sarah Brown

    ()

  • Karl Taylor

    ()

    (Department of Economics, The University of Sheffield)

Using individual level panel data, we analyse the divergence between an unemployed individual´s reservation wage, as well as their expected wage, and their predicted market wage, focusing upon how job search activities influence the potential divergences. In addition, using propensity score matching techniques, we explore the implications of such divergences for future employment and wages. Our findings, which are consistent with job search theory, suggest that reservation wages (and expected wages) that are high relative to the predicted market wage influence both future employment and future wages.

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File URL: http://www.shef.ac.uk/content/1/c6/08/62/44/SERP2008008.pdf
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Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2008008.

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Length: 25 pages
Date of creation: Jul 2008
Date of revision: Jul 2008
Handle: RePEc:shf:wpaper:2008008
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  1. Prasad, Eswar, 2003. "What Determines the Reservation Wages of Unemployed Workers? New Evidence from German Micro Data," IZA Discussion Papers 694, Institute for the Study of Labor (IZA).
  2. Barbara Sianesi, 2001. "Propensity score matching," United Kingdom Stata Users' Group Meetings 2001 12, Stata Users Group, revised 23 Aug 2001.
  3. Blackaby, David H. & Latreille, Paul L. & Murphy, Philip D. & O'Leary, Nigel C. & Sloane, Peter J., 2006. "An Analysis of Reservation Wages for the Economically Inactive," IZA Discussion Papers 1980, Institute for the Study of Labor (IZA).
  4. Alberto Abadie & Guido W. Imbens, 2008. "On the Failure of the Bootstrap for Matching Estimators," Econometrica, Econometric Society, vol. 76(6), pages 1537-1557, November.
  5. John T. Addison & M�Rio 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, 01.
  6. Eswar Prasad, 2003. "What Determines the Reservation Wages of Unemployed Workers? New Evidence From German Micro Data," IMF Working Papers 03/4, International Monetary Fund.
  7. Frijters, Paul & van der Klaauw, Bas, 2004. "Job Search with Nonparticipation," IZA Discussion Papers 1407, Institute for the Study of Labor (IZA).
  8. 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.
  9. Hogan, Vincent, 2004. "Wage aspirations and unemployment persistence," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1623-1643, November.
  10. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  11. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
  12. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  13. Gorter, Dirk & Gorter, Cees, 1993. "The Relation between Unemployment Benefits, the Reservation Wage and Search Duration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(2), pages 199-214, May.
  14. Alan Manning, 2005. "You can't always get what you want: the impact of the jobseeker's allowance," LSE Research Online Documents on Economics 19886, London School of Economics and Political Science, LSE Library.
  15. Sascha O. Becker & Marco Caliendo, 2007. "mhbounds - Sensitivity Analysis for Average Treatment Effects," Discussion Papers of DIW Berlin 659, DIW Berlin, German Institute for Economic Research.
  16. Armin Falk & Ernst Fehr & Christian Zehnder, . "The Behavioral Effects of Minimum Wages," IEW - Working Papers 247, Institute for Empirical Research in Economics - University of Zurich.
  17. Sarah Brown & Stephen Pudney, 2005. "Hours Constraints and In-Work Poverty," Bulletin of Economic Research, Wiley Blackwell, vol. 57(3), pages 305-315, 07.
  18. Schmitt, John & Wadsworth, Jonathan, 1993. "Unemployment Benefit Levels and Search Activity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(1), pages 1-24, February.
  19. Mayhew, Ken & Rosewell, Bridget, 1981. "Occupational Mobility in Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 43(3), pages 225-55, August.
  20. 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 19 Jan 2015.
  21. 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.
  22. 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.
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