Wages and the Value of Nonemployment

Simon Jäger, Benjamin Schoefer, Samuel Young and Josef Zweimüller

No 25230, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Nonemployment is often posited as a worker’s outside option in wage setting models such as bargaining and wage posting. The value of nonemployment is therefore a key determinant of wages. We measure the wage effect of changes in the value of nonemployment among initially employed workers. Our quasi-experimental variation in the value of nonemployment arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit changes: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than $0.03. The insensitivity holds even among workers with low wages and high predicted unemployment duration, and among job switchers and recently unemployed workers. The insensitivity of wages to the nonemployment value presents a puzzle to the widely used Nash bargaining model, which predicts a sensitivity of $0.24–$0.48. Our evidence supports wage-setting models that insulate wages from the value of nonemployment.

JEL-codes: D43 D83 E0 E2 E24 H0 H22 H55 J0 J2 J3 J30 J31 J41 J42 J5 J6 J64 J65 M5 M52 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-gth, nep-ias, nep-lma and nep-mac
Note: EFG LS PE ME
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Citations: View citations in EconPapers (8)

Published as Simon Jäger & Benjamin Schoefer & Samuel Young & Josef Zweimüller, 2020. "Wages and the Value of Nonemployment*," The Quarterly Journal of Economics, vol 135(4), pages 1905-1963.

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Related works:
Journal Article: Wages and the Value of Nonemployment* (2020)
Working Paper: Wages and the Value of Nonemployment (2020)
Working Paper: Wages and the Value of Nonemployment (2018)
Working Paper: Wages and the Value of Nonemployment (2018)
Working Paper: Wages and the Value of Nonemployment (2018)
Working Paper: Wages and the value of nonemployment (2018)
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