Risk Aversion and Reservation Wages

Markus Pannenberg

No 2806, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This study examines the relationship between individual risk aversion and reservation wages using a novel set of direct measures of individual risk attitudes from the German Socio-Economic Panel (SOEP). We find that risk aversion has a significantly negative impact on the level of reservation wages. Moreover, we show that the elasticity of the reservation wage with respect to unemployment benefits is remarkably lower for risk-averse job seekers than for risk-loving job seekers. The results are consistent with an interpretation that risk-averse job seekers set their reservation wage levels sufficiently low, so that they accept almost every job offer.

Keywords: risk aversion; reservation wages; survey data (search for similar items in EconPapers)
JEL-codes: J64 J65 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2007-05
New Economics Papers: this item is included in nep-lab and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published - substantially revised version published as 'Risk attitudes and reservation wages of unemployed workers: Evidence from panel data' in: Economics Letters, 2010, 106 (3), 223-226

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Working Paper: Risk Aversion and Reservation Wages (2007)
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