Strategic Unemployment

Julia Angerhausen, Christian Bayer and Burkhard Hehenkamp

Discussion Papers in Economics from University of Dortmund, Department of Economics

Abstract: We propose a dynamic model that explains why individuals may be reluctant to pick up work although the wage is above their reservation wage. Accepting low paid work will put them in an adverse position in future wage bargaining, as employers could infer the individual.s low reservation wage from his working history. Employers will exploit their knowledge o¤ering low wages to this individual in the future. Therefore, employees with low reservation wage strategically opt into unemployment to signal a high reservation wage.

Pages: 23 pages
Date: 2006-07
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Journal Article: Strategic Unemployment (2010)
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