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The estimation of reservation wages: A simulation-based comparison

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  • Leppin, Julian Sebastian

Abstract

This paper examines the predictive power of different estimation approaches for reservation wages. It applies stochastic frontier models for employed workers and the approach from Kiefer and Neumann (1979b) for unemployed workers. Furthermore, the question of whether or not reservation wages decrease over the unemployment period is addressed. This is done by a pseudo-panel with known reservation wages which uses data from the German Socio-Economic Panel as a basis. The comparison of the estimators is carried out by a Monte Carlo simulation. The best results are achieved by the cross-sectional stochastic frontier model. The Kiefer-Neumann approach failed to predict the decreasing reservation wages correctly.

Suggested Citation

  • Leppin, Julian Sebastian, 2012. "The estimation of reservation wages: A simulation-based comparison," HWWI Research Papers 124, Hamburg Institute of International Economics (HWWI).
  • Handle: RePEc:zbw:hwwirp:124
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    Cited by:

    1. Hohenleitner, Ingrid & Hillmann, Katja, 2012. "Impact of Benefit Sanctions on Unemployment Outflow - Evidence from German Survey Data," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 66055, Verein für Socialpolitik / German Economic Association.
    2. Julian S. Leppin & Stefan Reitz, 2016. "The Role of a Changing Market Environment for Credit Default Swap Pricing," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(3), pages 209-223, July.
    3. Bräuninger, Michael, 2014. "Tax sovereignty and feasibility of international regulations for tobacco tax policies," HWWI Research Papers 152, Hamburg Institute of International Economics (HWWI).
    4. Vöpel, Henning, 2013. "A Zidane clustering theorem: Why top players tend to play in one team and how the competitive balance can be restored," HWWI Research Papers 141, Hamburg Institute of International Economics (HWWI).

    More about this item

    Keywords

    job search theory; Monte Carlo simulation; reservation wages; stochastic wage frontiers;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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