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The Reservation Wage Unemployment Duration Nexus

Pedro Portugal, John Addison () and José António Machado

Working Papers from Banco de Portugal, Economics and Research Department

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.

JEL-codes: J64 J65 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-lab and nep-ltv
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Journal Article: The Reservation Wage Unemployment Duration Nexus (2013) Downloads
Working Paper: The Reservation Wage Unemployment Duration Nexus (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201026

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