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What Determines the Reservation Wages of Unemployed Workers? New Evidence from German Micro Data

23 Pages Posted: 28 Jan 2006  

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

Date Written: January 2003

Abstract

This paper provides new empirical evidence on the relationship between reservation wages of unemployed workers and macroeconomic factors - including the unemployment rate and generosity of the unemployment compensation system - as well as individual-specific determinants, such as human capital proxies and length of unemployment spell. The longitudinal dataset provides an interesting perspective on how reservation wages change over time and how they correlate with accepted wage offers for workers who move from unemployment to employment. The findings shed light on the disincentive effects of the German tax and transfer system for the employment decisions of unemployed workers at different skill levels.

Keywords: Reservation wage, labor supply disincentives, offer wage distribution, unemployment and employment determinants

JEL Classification: J6, J3

Suggested Citation

Prasad, Eswar S., What Determines the Reservation Wages of Unemployed Workers? New Evidence from German Micro Data (January 2003). IMF Working Paper, Vol. , pp. 1-23, 2003. Available at SSRN: https://ssrn.com/abstract=879079

Eswar Prasad (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

440 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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IZA Institute of Labor Economics

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

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