What Determines the Reservation Wages of Unemployed Workers? New Evidence From German Micro Data
IMF Working Papers, January 1, 2003
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Bibliographic details
- Authors: Eswar S Prasad
- Published: January 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451842067.001
Summary
- Paper provides new empirical evidence on the relationship between reservation wages of unemployed workers and macroeconomic factors, including the unemployment rate and generosity of the unemployment compensation system.
- Also analyzes individual-specific determinants, such as human capital proxies and length of unemployment spell.
- Uses a longitudinal dataset to examine how reservation wages change over time and how they correlate with accepted wage offers for workers who move from unemployment to employment.
- Findings highlight disincentive effects of the German tax and transfer system for employment decisions of unemployed workers at different skill levels.
Major findings
- Reservation wages are related to macroeconomic factors, including the unemployment rate and the generosity of the unemployment compensation system.
- Individual-specific determinants, such as human capital proxies and length of unemployment spell, influence reservation wages.
- Longitudinal evidence shows how reservation wages change over time for unemployed individuals.
- Correlations exist between reservation wages and accepted wage offers for workers transitioning from unemployment to employment.
- The German tax and transfer system produces disincentive effects on employment decisions, varying across skill levels.
Policy implications and recommendations (as indicated by findings)
- Consideration of how the generosity of unemployment compensation interacts with reservation wages when designing unemployment benefit policy.
- Reassessment of tax and transfer configurations to mitigate identified disincentive effects on employment decisions, especially across different skill levels.
- Use of longitudinal microdata in policy evaluation to capture dynamic changes in reservation wages and transitions from unemployment to employment.
IMF Working Paper — What Determines the Reservation Wages of Unemployed Workers? New Evidence From German Micro Data; Eswar S Prasad; Working Paper No. 2003/004; DOI: https://doi.org/10.5089/9781451842067.001