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

Publication type

Research Paper

Series Number

3981

Series

IZA Discussion Papers

Authors

Publication date

January 1, 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

Link

- http://econpapers.repec.org/paper/izaizadps/dp3981.htm

Notes

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working paper

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