Reservation Wages: Explaining Some Puzzling Regional Patterns

26 Pages Posted: 1 Mar 2011

Multiple version iconThere are 2 versions of this paper

Date Written: February 20, 2011

Abstract

We use the Italian Labour Force Survey and the European Household Panel Survey to analyse the distribution of the reservation wages reported by job-seekers. In Italy, reservation wages appear to be higher in the South the low-income and high-unemployment area of the country than in the North and Centre. A similar, rather counterintuitive, pattern can also be found in Finland, France, and Spain. First, we show that the way in which these data are commonly collected generates double-selection bias. Second, we show that this bias has a strong effect on the estimation of the geographical pattern of reservation wages in many countries. The size of this bias is substantial in Italy. When controlling for it, reservation wages are at least 10 percent higher in the North and Centre than in the South.

Suggested Citation

Sestito, Paolo and Viviano, Eliana, Reservation Wages: Explaining Some Puzzling Regional Patterns (February 20, 2011). LABOUR, Vol. 25, No. 1, pp. 63-88, 2011, Available at SSRN: https://ssrn.com/abstract=1773231 or http://dx.doi.org/10.1111/j.1467-9914.2010.00508.x

Paolo Sestito (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Eliana Viviano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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