Great expectations: Reservation wages and minimum wage reform

Alexandra Fedorets and Cortnie Shupe

Journal of Economic Behavior & Organization, 2021, vol. 183, issue C, 397-419

Abstract: This paper is the first causal study using quasi-experimental methods to identify the effect of minimum wages on the reservation wages of non-workers. We exploit variation in regional exposure to the introduction of a high-impact minimum wage in Germany in 2015, combined with survey responses about wage acceptance thresholds of job seekers. Results show a 16% increase in reservation wages among non-employed job seekers at the low end of the distribution during the period immediately following the reform. Over time, however, wage expectations revert to pre-reform levels. Our findings are suggestive of learning during the search process and further imply that minimum wages do not necessarily result in higher short-run labor force participation, as job seekers adjust their reservation wages accordingly.

Keywords: Minimum wages; Reservation wage; Labor supply; Search (search for similar items in EconPapers)
JEL-codes: J22 J3 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Great Expectations: Reservation Wages and the Minimum Wage Reform (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:183:y:2021:i:c:p:397-419

DOI: 10.1016/j.jebo.2021.01.006

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