IDEAS home Printed from https://ideas.repec.org/a/eee/labeco/v71y2021ics0927537121000452.html
   My bibliography  Save this article

The effect of unemployment duration on reservation wages: Evidence from Belgium

Author

Listed:
  • Deschacht, Nick
  • Vansteenkiste, Sarah

Abstract

This paper studies the effect of unemployment duration on asking (reservation) wages. We provide new evidence based on unique longitudinal data on unemployed workers in Belgium, who were surveyed about self-reported reservation wages at the start of the unemployment spell, and after 3 and 6 months of unemployment duration. Our estimates suggest that reservation wages decline with unemployment duration by about 0.4 percent per month, or 5 percent per year, and that cross-sectional estimates are biased upward. We find stronger declines among men and among workers who earned high wages in their previous jobs. The paper discusses these findings in the light of learning models and discusses the implications of falling reservation wages for the debate on the effect of unemployment on wages.

Suggested Citation

  • Deschacht, Nick & Vansteenkiste, Sarah, 2021. "The effect of unemployment duration on reservation wages: Evidence from Belgium," Labour Economics, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:labeco:v:71:y:2021:i:c:s0927537121000452
    DOI: 10.1016/j.labeco.2021.102010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927537121000452
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.labeco.2021.102010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thomas Le Barbanchon & Roland Rathelot & Alexandra Roulet, 2021. "Gender Differences in Job Search: Trading off Commute against Wage," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 381-426.
    2. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
    3. Bertrand, Marianne, 2011. "New Perspectives on Gender," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 17, pages 1543-1590, Elsevier.
    4. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, July.
    5. Le Barbanchon, Thomas & Rathelot, Roland & Roulet, Alexandra, 2019. "Unemployment insurance and reservation wages: Evidence from administrative data," Journal of Public Economics, Elsevier, vol. 171(C), pages 1-17.
    6. Koenig, Felix & Manning, Alan & Petrongolo, Barbara, 2014. "Reservation wages and the wage flexibility puzzle," LSE Research Online Documents on Economics 60613, London School of Economics and Political Science, LSE Library.
    7. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 141-167.
    8. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    9. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    10. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
    11. Caliendo, Marco & Lee, Wang-Sheng & Mahlstedt, Robert, 2017. "The gender wage gap and the role of reservation wages: New evidence for unemployed workers," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 161-173.
    12. Alan B. Krueger & Andreas I. Mueller, 2016. "A Contribution to the Empirics of Reservation Wages," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 142-179, February.
    13. Gerard J. van den Berg, 1990. "Nonstationarity in Job Search Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 255-277.
    14. John T. Addison & José A. F. Machado & Pedro Portugal, 2013. "The Reservation Wage Unemployment Duration Nexus," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(6), pages 980-987, December.
    15. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.
    16. Stephen R. G. Jones, 1988. "The Relationship Between Unemployment Spells and Reservation Wages as a Test of Search Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(4), pages 741-765.
    17. Vishwanath, Tara, 1989. "Job Search, Stigma Effect, and Escape Rate from Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 487-502, October.
    18. Amelie F. Constant & Annabelle Krause & Ulf Rinne & Klaus F. Zimmermann, 2017. "Reservation wages of first- and second-generation migrants," Applied Economics Letters, Taylor & Francis Journals, vol. 24(13), pages 945-949, July.
    19. Juan Dubra, 2004. "Optimism and Overconfidence in Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 198-218, January.
    20. Stefano DellaVigna & M. Daniele Paserman, 2005. "Job Search and Impatience," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 527-588, July.
    21. Lynch, Lisa M, 1983. "Job Search and Youth Unemployment," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 271-282, Supplemen.
    22. Azmat, Ghazala & Petrongolo, Barbara, 2014. "Gender and the labor market: What have we learned from field and lab experiments?," Labour Economics, Elsevier, vol. 30(C), pages 32-40.
    23. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    24. William F. Barnes, 1975. "Job Search Models, the Duration of Unemployment, and the Asking Wage: Some Empirical Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 10(2), pages 230240-2302.
    25. Kenneth Burdett & Tara Vishwanath, 1988. "Declining Reservation Wages and Learning," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 655-665.
    26. Thomas Le Barbanchon & Roland Rathelot & Alexandra Roulet, 0. "Gender Differences in Job Search: Trading off Commute against Wage," The Quarterly Journal of Economics, Oxford University Press, vol. 136(1), pages 381-426.
    27. repec:eee:labchp:v:2:y:1986:i:c:p:849-919 is not listed on IDEAS
    28. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2016. "The Effect of Unemployment Benefits and Nonemployment Durations on Wages," American Economic Review, American Economic Association, vol. 106(3), pages 739-777, March.
    29. Azmat, Ghazala & Petrongolo, Barbara, 2014. "Gender and the labor market: What have we learned from field and lab experiments?," Labour Economics, Elsevier, vol. 30(C), pages 32-40.
    30. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-862, December.
    31. Pannenberg, Markus, 2010. "Risk attitudes and reservation wages of unemployed workers: Evidence from panel data," Economics Letters, Elsevier, vol. 106(3), pages 223-226, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kesternich, Iris & Schumacher, Heiner & Siflinger, Bettina & Valder, Franziska, 2022. "Reservation wages and labor supply," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 583-607.
    2. Simon Jäger & Benjamin Schoefer & Samuel Young & Josef Zweimüller, 2020. "Wages and the Value of Nonemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 1905-1963.
    3. Stephan Humpert & Christian Pfeifer, 2013. "Explaining age and gender differences in employment rates: a labor supply-side perspective [Eine Erklärung alters- und geschlechtsspezifischer Unterschiede in den Beschäftigungsquoten: Die Sicht de," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 46(1), pages 1-17, March.
    4. Sascha Drahs & Luke Haywood & Amelie Schiprowski, 2018. "Job Search with Subjective Wage Expectations," Discussion Papers of DIW Berlin 1725, DIW Berlin, German Institute for Economic Research.
    5. Brown, Alessio J.G. & Kohlbrecher, Britta & Merkl, Christian & Snower, Dennis J., 2021. "The effects of productivity and benefits on unemployment: Breaking the link," Economic Modelling, Elsevier, vol. 94(C), pages 967-980.
    6. Cortes, Patricia & Pan, Jessica & Pilossoph, Laura & Zafar, Basit, 2021. "Gender Differences in Job Search and the Earnings Gap: Evidence from Business Majors," IZA Discussion Papers 14373, Institute of Labor Economics (IZA).
    7. Le Barbanchon, Thomas & Rathelot, Roland & Roulet, Alexandra, 2019. "Unemployment insurance and reservation wages: Evidence from administrative data," Journal of Public Economics, Elsevier, vol. 171(C), pages 1-17.
    8. Kiessling, Lukas & Pinger, Pia & Seegers, Philipp & Bergerhoff, Jan, 2024. "Gender differences in wage expectations and negotiation," Labour Economics, Elsevier, vol. 87(C).
    9. Thomas Le Barbanchon & Roland Rathelot & Alexandra Roulet, 2021. "Gender Differences in Job Search: Trading off Commute against Wage," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 381-426.
    10. Fedorets, Alexandra & Shupe, Cortnie, 2021. "Great expectations: Reservation wages and minimum wage reform," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 397-419.
    11. Potter, Tristan, 2021. "Learning and job search dynamics during the Great Recession," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 706-722.
    12. Luz A. Florez & Ligia Alba Melo-Becerra & Carlos Esteban Posada, 2021. "Estimating the reservation wage across city groups in Colombia: A stochastic frontier approach," Borradores de Economia 1163, Banco de la Republica de Colombia.
    13. Hila Axelrad & Israel Luski & Miki Malul, 2017. "Reservation Wages and the Unemployment of Older Workers," Journal of Labor Research, Springer, vol. 38(2), pages 206-227, June.
    14. Feld, Brian & Nagy, AbdelRahman & Osman, Adam, 2022. "What do jobseekers want? Comparing methods to estimate reservation wages and the value of job attributes," Journal of Development Economics, Elsevier, vol. 159(C).
    15. Julio J. Rotemberg, 2017. "Group Learning, Wage Dispersion and Non-stationary Offers," Economica, London School of Economics and Political Science, vol. 84(335), pages 365-392, July.
    16. Koenig, Felix & Manning, Alan & Petrongolo, Barbara, 2014. "Reservation wages and the wage flexibility puzzle," LSE Research Online Documents on Economics 60613, London School of Economics and Political Science, LSE Library.
    17. Petrongolo, Barbara & Ronchi, Maddalena, 2020. "Gender gaps and the structure of local labor markets," Labour Economics, Elsevier, vol. 64(C).
    18. Robert Shimer & Iván Werning, 2007. "Reservation Wages and Unemployment Insurance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1145-1185.
    19. Borghorst, Malte & Mulalic, Ismir & van Ommeren, Jos, 2021. "Commuting, Children and the Gender Wage Gap," Working Papers 15-2021, Copenhagen Business School, Department of Economics.
    20. Andreas I. Mueller & Johannes Spinnewijn & Giorgio Topa, 2021. "Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias," American Economic Review, American Economic Association, vol. 111(1), pages 324-363, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:71:y:2021:i:c:s0927537121000452. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/labeco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.