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Wage Aspirations and Unemployment Persistence

  • Vincent Hogan

    (University College Dublin)

The reservation wage is an integral part of most theories of involuntary unemployment. We use panel data to examine the empirical determinants of the reservation wage - in particular the influence of previous wages - and consider what this implies for the evolution of the natu- ral rate of unemployment. We find that previous wages have a significant but relatively small effect on reservation wages (an elasticity between 0.15 and 0.47). We also find considerable differences across genders with previous wages being more important for men and market wages being more important for women. Overall our results suggest that unemployment will adjust relatively quickly to shocks.

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File URL: http://www.ucd.ie/economics/research/papers/2003/WP03.10.pdf
File Function: First version, 2003
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Paper provided by School of Economics, University College Dublin in its series Working Papers with number 200310.

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Length: 25 pages
Date of creation: 13 Apr 2003
Date of revision:
Handle: RePEc:ucn:wpaper:200310
Contact details of provider: Postal: UCD, Belfield, Dublin 4
Phone: +353-1-7067777
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics

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  1. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  2. Bloemen, H.G. & Stancanelli, E.G.F., 1997. "Individual Wealth, Reservation Wages and Transitions into Employment," Discussion Paper 1997-02, Tilburg University, Center for Economic Research.
  3. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 141-167.
  5. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  6. Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, vol. 56(222), pages 225-46, May.
  7. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
  8. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-68, July.
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