Reservation Wages and Labor Supply

37 Pages Posted: 10 Jun 2020

See all articles by Iris Kesternich

Iris Kesternich

KU Leuven - Department of Economics; Ludwig Maximilian University of Munich (LMU) - Faculty of Economics

Bettina M Siflinger

Tilburg University

Heiner Schumacher

KU Leuven

Franziska Valder

KU Leuven

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

Survey measures of the reservation wage reflect both the consumption-leisure trade-off and job search concerns (the arrival rate of job offers and the wage distribution). We examine what a survey measure of the reservation wage reveals about labor supply when search concerns are absent. 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. The two measures show a strong positive association. For unemployed individuals, the experimental reservation wage increases on average by around one Euro for every Euro increase in the survey measure. For employed individuals, the association between the two measures is weaker, but still positive and statistically significant. We show that these results are robust to selection into the experiment, and that demographic variables have a similar influence on both reservation wage measures.

JEL Classification: C830, C910, J220

Suggested Citation

Kesternich, Iris and Siflinger, Bettina M and Schumacher, Heiner and Valder, Franziska, Reservation Wages and Labor Supply ( 2020). CESifo Working Paper No. 8348, Available at SSRN: https://ssrn.com/abstract=3623683

Iris Kesternich (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Bettina M Siflinger

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Heiner Schumacher

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Franziska Valder

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

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