The Effects of Savings on Reservation Wages and Search Effort

45 Pages Posted: 31 Jul 2012

Multiple version iconThere are 2 versions of this paper

Date Written: January 2, 2012

Abstract

This paper discusses the interrelations among wealth, reservation wages and search effort. A theoretical job search model predicts wealth to affect reservation wages positively, and search effort negatively. Moreover, the model shows that reservation wages have a negative effect on search effort, thereby also predicting an indirect negative effect of wealth on search intensity. A simultaneous-equation model for wealth, reservation wages and search intensity takes these theoretical results to the data. The data used is a Dutch panel, containing detailed information on, individual wealth and income, subjective reservation wages and proxies for search effort. The main empirical results show that wealth has a significantly positive effect on reservation wages, though it has no significant effect on search effort. Since reservation wages do have a significant negative impact on search effort, the wealth-effect on search effort only takes place indirectly, via an increased reservation wage.

Keywords: search, reservation wages, wealth, consumption smoothing

JEL Classification: C30, C36, D01, J64

Suggested Citation

Lammers, Marloes, The Effects of Savings on Reservation Wages and Search Effort (January 2, 2012). Netspar Discussion Paper No. 01/2012-023, Available at SSRN: https://ssrn.com/abstract=2120435 or http://dx.doi.org/10.2139/ssrn.2120435

Marloes Lammers (Contact Author)

SEO Economic Research ( email )

Roetersstraat 29
Amsterdam, 1018 WB
Netherlands

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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