Risk Aversion and Reservation Wages

Pannenberg, Markus

doi:10.2139/ssrn.994898

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Risk Aversion and Reservation Wages

IZA Discussion Paper No. 2806

SOEPpaper, No. 23

21 Pages Posted: 25 Jun 2007 Last revised: 16 Apr 2023

See all articles by Markus Pannenberg

Markus Pannenberg

University of Applied Sciences Bielefeld - Faculty of Business; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn

Abstract

This study examines the relationship between individual risk aversion and reservation wages using a novel set of direct measures of individual risk attitudes from the German Socio-Economic Panel (SOEP). We find that risk aversion has a significantly negative impact on the level of reservation wages. Moreover, we show that the elasticity of the reservation wage with respect to unemployment benefits is remarkably lower for risk-averse job seekers than for risk-loving job seekers. The results are consistent with an interpretation that risk-averse job seekers set their reservation wage levels sufficiently low, so that they accept almost every job offer.

Keywords: risk aversion, reservation wages, survey data

JEL Classification: J64, J65

Suggested Citation: Suggested Citation

Pannenberg, Markus, Risk Aversion and Reservation Wages. IZA Discussion Paper No. 2806, SOEPpaper, No. 23, Available at SSRN: https://ssrn.com/abstract=994898 or http://dx.doi.org/10.2139/ssrn.994898