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Strategic Unemployment

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  • Julia Angerhausen
  • Christian Bayer
  • Burkhard Hehenkamp

Abstract

The empirical literature on happiness finds that employment significantly contributes to well-being. We propose a dynamic model that explains why individuals may nonetheless be reluctant to pick up low-paid work. Accepting low-paid work will put them in an adverse position in future wage bargaining, as employers could infer the individual's low reservation wage from his working history. Employers will exploit their knowledge by offering low wages to this individual in the future. Therefore, employees with low reservation wage strategically opt into unemployment to signal a high reservation wage.

Suggested Citation

  • Julia Angerhausen & Christian Bayer & Burkhard Hehenkamp, 2010. "Strategic Unemployment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(3), pages 439-461, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201009)166:3_439:su_2.0.tx_2-9
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    References listed on IDEAS

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    1. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 865-887, July.
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    Cited by:

    1. Schnedler, Wendelin & Vanberg, Christoph, 2014. "Playing ‘hard to get’: An economic rationale for crowding out of intrinsically motivated behavior," European Economic Review, Elsevier, vol. 68(C), pages 106-115.
    2. Peng-Ju Su, Alice, 2020. "Information advantage and minimum wage," Information Economics and Policy, Elsevier, vol. 50(C).

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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