The Reservation Wage Unemployment Duration Nexus

John Addison, José António Machado and Pedro Portugal ()

No 5077, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a natural control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent. For its part, the completed duration coefficient suggests that higher reservation wages negatively influence the probability of exiting unemployment.

Keywords: control function; unemployment duration; reservation wages (search for similar items in EconPapers)
JEL-codes: J64 J65 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2010-07
New Economics Papers: this item is included in nep-lab and nep-ltv
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Citations: View citations in EconPapers (6)

Published - published in: Oxford Bulletin of Economics and Statistics, 2013, 75 (6), 980-987

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Journal Article: The Reservation Wage Unemployment Duration Nexus (2013)
Working Paper: The Reservation Wage Unemployment Duration Nexus (2010)
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