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Research Paper Sheffield Economic Research Paper Series 2009001

Reservation wages, expected wages and the duration of unemployment: evidence from British panel data

Authors

Publication date

01 Jan 2009

Abstract

In this paper we analyse the role of wage expectations in an empirical model of incomplete spells of unemployment and reservation wages. To be specific, we model the duration of unemployment, reservation wages and expected wages simultaneously for a sample of individuals who are not in work, where wage expectations are identified via an exogenous policy shock based upon the introduction of Working Family Tax Credits (WFTC) in the UK. The results from the empirical analysis, which is based on the British Household Panel Survey, suggest that WFTC eligibility served to increase expected wages and that expected wages are positively associated with reservation wages. In addition, incorporating wage expectations into the econometric framework was found to influence the magnitude of the key elasticities: namely the elasticity of unemployment duration with respect to the reservation wage and the elasticity of the reservation wage with respect to unemployment duration.

Subjects

Unemployment, Welfare Benefits, and Wages And Earnings

Links

http://econpapers.repec.org/RePEc:shf:wpaper:2009001

Notes

Econpapers search; working paper

#512443


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