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)
Krueger, Alan B., and Andreas I. Mueller.
"A Contribution to the Empirics of Reservation Wages."
American Economic Journal: Economic Policy,
Time Allocation and Labor Supply
Wage Level and Structure; Wage Differentials
Unemployment: Models, Duration, Incidence, and Job Search