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  4. February 2016
  5. A Contribution to the Empirics of Reservation Wages

A Contribution to the Empirics of Reservation Wages

  • Alan B. Krueger
  • Andreas I. Mueller
American Economic Journal: Economic Policy
vol. 8, no. 1, February 2016
(pp. 142-79)
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Abstract

This paper provides evidence on the behavior of reservation wages over the spell of unemployment, using high-frequency longitudinal data on unemployed workers in New Jersey. In comparison to a calibrated job search model, the reservation wage starts out too high and declines too slowly, on average, suggesting that many workers persistently misjudge their prospects or anchor their reservation wage on their previous wage. The longitudinal nature of the data also allows for testing the relationship between job acceptance and the reservation wage, where the reservation wage is measured from a previous interview to avoid bias due to cognitive dissonance. (JEL J22, J31, J64)

Citation

Krueger, Alan B., and Andreas I. Mueller. 2016. "A Contribution to the Empirics of Reservation Wages." American Economic Journal: Economic Policy, 8 (1): 142-79. DOI: 10.1257/pol.20140211

Additional Materials

JEL Classification

  • J22 Time Allocation and Labor Supply
  • J31 Wage Level and Structure; Wage Differentials
  • J64 Unemployment: Models, Duration, Incidence, and Job Search
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