On the Rationality of Black Youth Unemployment

22 Pages Posted: 19 Jun 2004  

Harry J. Holzer

Georgetown University - Public Policy Institute (GPPI); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: August 1984

Abstract

In this paper I provide some evidence on the question of whether the behavior of unemployed young blacks, whose reservation wages are relatively high and whose jobless spells are very lengthy, reflect rational maximizing choices. To do this, I use a simple income-maximizing job search model to imply employment probabilities and various elasticities which are compared to those which are actually observed for young blacks.The results show that, for reasonable discount rates, the employment probabilities implied by income-maximization are consistent with those observed for young blacks. The elasticities of reservation wages with respect to nonwage income that are implied by income-maximizing are also consistent with those estimated econometrically for this group. This was true despite the many assumptions embodied in this model whose validity fora sample of low-income youth is highly questionable.The evidence thus suggests that young blacks are making economically rational choices by choosing high reservation wages and lengthy spells without jobs.

Suggested Citation

Holzer, Harry J., On the Rationality of Black Youth Unemployment (August 1984). NBER Working Paper No. w1411. Available at SSRN: https://ssrn.com/abstract=327128

Harry J. Holzer (Contact Author)

Georgetown University - Public Policy Institute (GPPI) ( email )

3600 N Street, NW Suite 200
Washington, DC 20057
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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