Reservation Wages and Labor Supply

Abstract

We test what survey measures of the reservation wage reveal about individual labor supply, i.e., an individual’s willingness to substitute leisure by consumption. To this end, we combine the reservation wage measure from a large labor market survey with the reservation wage for a one-hour job that we elicit in an online experiment. We find that these two measures are highly correlated. On average, the experimental reservation wage increases by 50 Cents for every Euro increase in the survey measure.

Keywords: Reservation Wage, Labor Supply, Search, Validation of Survey Measures

JEL Classification: C83, C91, J22