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The impact of local unemployment rates on reservation wages and the duration of search for a job

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Abstract

Evidence about the relationship of local unemployment rates and individuals' reservation wages and duration of search for a job if unemployed is sparse and mixed. This study uses US data from the Panel Study of Income Dynamics (PSID) to test whether relatively high local unemployment rates reduce the reservation wages of area residents or increase the duration of search. Labour search theory provides the grounding for the sample selection corrected simultaneous equations econometric model. In neither OLS nor 2SLS results is evidence found that local unemployment rates affect either reservation wages or the duration of search. These results suggest that policies targeted at alleviating unemployment should focus on increasing the demand for labour rather than hope that such policies will be beneficial if pursued in high-unemployment areas because of their effects on labour force characteristics.

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  • Donald Haurin & Kala Sridhar, 2003. "The impact of local unemployment rates on reservation wages and the duration of search for a job," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1469-1476.
    • Handle: RePEc:taf:applec:v:35:y:2003:i:13:p:1469-1476
    DOI: 10.1080/0003684032000081302
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    2. Piekkola, Hannu, 2006. "Tax cuts and employment: Evidence from Finnish linked employer-employee data," Discussion Papers 1041, The Research Institute of the Finnish Economy.
    3. Madhu Mohanty, 2005. "An alternative method of estimating the worker's reservation wage," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 501-522.
    4. Melanie Arntz & Ralf Wilke, 2009. "Unemployment Duration in Germany: Individual and Regional Determinants of Local Job Finding, Migration and Subsidized Employment," Regional Studies, Taylor & Francis Journals, vol. 43(1), pages 43-61.
    5. 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.
    6. Luis Eduardo Arango & Ana María Ríos, 2015. "Duración del desempleo en Colombia: género, intensidad de búsqueda y anuncios de vacantes," BORRADORES DE ECONOMIA 012528, BANCO DE LA REPÚBLICA.
    7. Luis Eduardo Arango & Ana María Ríos, 2015. "Duración del desempleo en Colombia: género, intensidad de búsqueda y anuncios de vacantes," Borradores de Economia 12528, Banco de la Republica.
    8. María Angeles Davia & Oscar D. Marcenaro Gutiérrez, 2008. "Exploring the link between employment search time and reservation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 186(3), pages 91-121, October.
    9. Sarah Brown & Karl Taylor, "undated". "Reservation Wages, Expected wages and the duration of Unemployment: evidence from British Panel data," Working Papers 2009001, The University of Sheffield, Department of Economics.
    10. repec:npf:wpaper:19 is not listed on IDEAS
    11. María A. Davia & Óscar D. Marcenaro-Gutiérrez, 2007. "Exploring the link between employment search time and reservation wages in Southern Europe," Economic Working Papers at Centro de Estudios Andaluces E2007/13, Centro de Estudios Andaluces.
    12. repec:ind:nipfwp:04 is not listed on IDEAS
    13. Kala Seetharam Sridhar, 2005. "Impact of Growth Centres on Unemployment and Firm Location: Evidence from India," Palgrave Macmillan Books, in: Incentives for Regional Development, chapter 6, pages 117-138, Palgrave Macmillan.
    14. Sridhar, Kala Seetharam, 2004. "Impact of the enterprise zone," Working Papers 04/19, National Institute of Public Finance and Policy.
    15. Matthew Forbes & Andrew Barker, 2017. "Local Labour Markets and Unemployment Duration," The Economic Record, The Economic Society of Australia, vol. 93(301), pages 238-254, June.
    16. Mark Stater & Jeffrey B Wenger, 2017. "The Immediate Hardship of Unemployment: Evidence from the US Unemployment Insurance System," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 17-36, January.
    17. repec:npf:wpaper:04 is not listed on IDEAS
    18. d'Haultfoeuille, Xavier, 2010. "A new instrumental method for dealing with endogenous selection," Journal of Econometrics, Elsevier, vol. 154(1), pages 1-15, January.
    19. Kala Seetharam Sridhar, 2006. "Local Employment Impact of Growth Centres: Evidence from India," Urban Studies, Urban Studies Journal Limited, vol. 43(12), pages 2205-2235, November.
    20. repec:ind:nipfwp:19 is not listed on IDEAS
    21. Kala Seetharam Sridhar & A.V. Reddy, 2015. "India’s Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS): Wages, Reservation Wages and Programme Participation in Chitradurga District of Karnataka," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 40(3-4), pages 366-384, August.

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