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Reservation wages: explaining some puzzling regional patterns

Author

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  • Paolo Sestito

    (Bank of Italy)

  • Eliana Viviano

    (Bank of Italy)

Abstract

We use the Italian Labour Force Survey and the European Household Panel Survey to analyse the distribution of the reservation wages reported by jobseekers. In Italy, reservation wages appear to be higher in the South - the low income and high unemployment area of the country - than in the North and Centre. A similar, rather counterintuitive, pattern, however, can also be found in Finland, France and Spain. First, we show that the way in which these data are commonly collected generates double selection bias. Second, we show that this bias has a strong effect on the estimation of the geographical pattern of reservation wages in many countries. The size of this bias is substantial in Italy. When controlling for it, reservation wages are 10 per cent higher in the North and Centre than in the South.

Suggested Citation

  • Paolo Sestito & Eliana Viviano, 2008. "Reservation wages: explaining some puzzling regional patterns," Temi di discussione (Economic working papers) 696, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_696_08
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    References listed on IDEAS

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    1. Harry J. Holzer, 1986. "Reservation Wages and Their Labor Market Effects for Black and White Male Youth," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 157-177.
    2. Ugo Trivellato & Anna Giraldo, 2006. "Assessing the ‘Choosiness’ of Job‐seekers. An Exploratory Approach and Evidence for Italy," LABOUR, CEIS, vol. 20(1), pages 1-36, March.
    3. Addison, John T. & Centeno, Mario & Portugal, Pedro, 2004. "Reservation Wages, Search Duration, and Accepted Wages in Europe," IZA Discussion Papers 1252, Institute of Labor Economics (IZA).
    4. Tito Boeri & Pietro Garibaldi, "undated". "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Böheim, René, 2002. "The association between reported and calculated reservation wages," ISER Working Paper Series 2002-07, Institute for Social and Economic Research.
    6. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 1-2.
    7. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
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    Citations

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    Cited by:

    1. Sarah Brown & Gurleen Popli & Alessandro Sasso, 2022. "Decomposing the gender reservation wage gap in Italy: A regional perspective," Journal of Regional Science, Wiley Blackwell, vol. 62(2), pages 499-540, March.
    2. 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.
    3. Somaya Ahmed Aly Abdel-Mowla, 2012. "Females’ Off-the-Job Search Methods in Egypt: Formal versus Informal Search Methods," Jindal Journal of Business Research, , vol. 1(1), pages 21-42, June.
    4. 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.
    5. Khurshid Alam & Sakiba Tasneem & Molla Huq, 2014. "Reservation wage of female volunteer community health workers in Dhaka urban slums: a bidding game approach," Health Economics Review, Springer, vol. 4(1), pages 1-10, December.
    6. Gutknecht, Daniel, 2012. "Do Reservation Wages Decline Monotonically? A Novel Statistical Test," Economic Research Papers 270635, University of Warwick - Department of Economics.
    7. Elisabetta Fiorentino & Alessio De Vincenzo & Frank Heid & Alexander Karmann & Michael Koetter, 2009. "The effects of privatization and consolidation on bank productivity: comparative evidence from Italy and Germany," Temi di discussione (Economic working papers) 722, Bank of Italy, Economic Research and International Relations Area.
    8. Brugiavini, Agar, 2009. "Welfare reforms and labour supply in Italy," Working Paper Series 2009:29, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    9. Kawata, Keisuke & Nakajima, Kentaro & Sato, Yasuhiro, 2016. "Multi-region job search with moving costs," Regional Science and Urban Economics, Elsevier, vol. 61(C), pages 114-129.
    10. repec:wrk:warwec:991 is not listed on IDEAS
    11. Antonio Accetturo & Luigi Infante, 2013. "Skills or culture? An analysis of the decision to work by immigrant women in Italy," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-21, December.
    12. World Bank, 2014. "Tunisia : Breaking the Barriers to Youth Inclusion [Tunisie - Surmonter les obstacles a l'inclusion des jeunes]," World Bank Publications - Reports 20693, The World Bank Group.
    13. Kristina Nyström & Gulzat Zhetibaeva Elvung, 2015. "New Firms as Employers: The Wage Penalty for Voluntary and Involuntary Job Switchers," LABOUR, CEIS, vol. 29(4), pages 348-366, December.

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    More about this item

    Keywords

    reservation wages; sample selection; regional differentials;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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