EconPapers    
Economics at your fingertips  
 

Wages and the Value of Nonemployment

Simon Jäger, Benjamin Schoefer, Samuel Young and Josef Zweimüller

No 13293, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: 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. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 - more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers' relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment.

Keywords: Bargaining; nonemployment; Unemployment Benefits; wages (search for similar items in EconPapers)
JEL-codes: J31 J60 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-lab
Date: 2018-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13293 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Wages and the Value of Nonemployment (2018) Downloads
Working Paper: Wages and the Value of Nonemployment (2018) Downloads
Working Paper: Wages and the Value of Nonemployment (2018) Downloads
Working Paper: Wages and the value of nonemployment (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13293

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=13293

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-04-02
Handle: RePEc:cpr:ceprdp:13293