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The Reservation Wage Theory, Vocational Rehabilitation and the Return to Work of Disabled Employees

Jan Høgelund and Anders Holm ()
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Jan Høgelund: Danish National Institute of Social Research

No 2006-07, CAM Working Papers from University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics

Abstract: Previous studies find that participation in educational measures does not increase sick-listed em-ployees’ chance of returning to work. This is surprising because education is supposed to increase human capital and raise productivity. However, a higher productivity may make the participants raise their reservation wage. Therefore, it is possible that educational measures increase the chance of returning to work in high pay jobs but reduce the chance of returning to work in low pay jobs. To test this hypothesis, we use panel data of 671 long-term sick-listed employees to estimate a random effects hazards rate model, with returning to work in high paid jobs and low-medium paid jobs, re-spectively, as the two outcomes. Our findings do not support the reservation wage hypothesis. We find that while participation in education significantly increases the probability of returning to work in medium or low paid jobs, it does not affect the probability of resuming work in high paid jobs.

Pages: 20 pages
New Economics Papers: this item is included in nep-edu and nep-lab
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