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Reservation Wages and Work Arrangements: Evidence From The American Life Panel

Michael Papadopoulos
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Michael Papadopoulos: Schwartz Center for Economic Policy Analysis (SCEPA),

No 2020-01, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: This study relates the rise of alternative work arrangements, particularly among older workers, with low reservation wages, a result of low bargaining power brought on by decreased attachment to career jobs and growing retirement income inadequacy. I utilize a linked sample between the RAND-Princeton Contingent Worker Survey and the American Life Panel's Health and Retirement Study, to estimate reservation wages via a two step process. I first estimate market wages on offer for non-employed people, then estimate the gap between market and reservation wages via a probit explaining probability of employment. I first confirm that my estimations for reservation wages follow expected patterns as exemplified in Hofler and Murphy (1995)'s “seven tests.†I then show that work in alternative work arrangements (on-call, temp agency, contract firm and gig work) is associated with a decrease in reservation wages of $4.47- $4.53 per hour, whereas work as an independent contractor or self-employed worker is associated with increased reservation wages by $3.72-$3.89 per hour. Whereas prior literature focuses on firm-centric explanations for an increase in alternative work, these findings point to supply-side factors which also contribute to an increase. Proposals to reform established surveys to better track work arrangements and policies to increase financial preparedness for retirement are discussed.

Keywords: alternative work; bargaining power; retirement; wages; labor (search for similar items in EconPapers)
JEL-codes: E24 J29 J30 J31 J38 J81 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-age and nep-mac
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