Changes in the Reservation Wage during the COVID-19 Pandemic in Japan

Abstract

This study examines changes in reservation wages during the pandemic using data on desired wages among job seekers in Japan. The effects of occupational characteristics, municipal fear of infection risk, local labor market tightness and financial support on the changes in the reservation wages for part-time and full-time jobs were examined. First, we found that at the beginning of the pandemic, reservation wages for part-time jobs decreased and those for full-time jobs increased; subsequently, the movement of the reservation wages reversed directions. Second, reservation wages for full-time jobs for which working from home is highly feasible decreased after the beginning of the pandemic. However, a similar change was not observed in reservation wages for part-time jobs. The quality of work-life balance and the stability of employment do not have clear effects on reservation wages. Finally, geographic differences were examined. In areas where the epidemic spread, reservation wages increased, especially for part-time jobs. Regarding labor market tightness, when finding a job became easier, reservation wages increased. In contrast, the municipal unemployment rate negatively affected the reservation wages for both types of jobs. Municipal financial capability positively affected reservation wages when a state of emergency was declared or just before such a declaration. The municipal-level feasibility of working from home, which is determined by the occupational composition of job seekers’ applications, decreases reservation wages for full-time jobs as well.

Keywords: reservation wages, offered wages, working at home, COVID-19, labor force

JEL Classification: J31, J21, J60