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The Reservation Wage of Unemployed Persons in the Federal Republic of Germany: Theory and Empirical Tests

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  • Wolfgang Franz

Abstract

This study examines the determinants of the reservation wage of unemployed persons in the Federal Republic of Germany in 1976. The theoretical section presents the derivation of an optimal reservation wage and shows the source of an ambiguity of some explanatory variables. The data basis are unemployed persons leaving the unemployment register within a given sample week. For a subset of them, we know their reservation wage and a set of personal characteristics. Other variables, such as the wage offer distribution and demand side variables, are obtained by employing other data. Methodological problems, such as as a sample selection bias, are taken into account. As a result, individual characteristics and the wage offer distribution are dominant causes of the reservation wage, but demand side variables and the entitlement to unemployment compensation play minor roles.

Suggested Citation

  • Wolfgang Franz, 1980. "The Reservation Wage of Unemployed Persons in the Federal Republic of Germany: Theory and Empirical Tests," NBER Working Papers 0578, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0578
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    1. 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.
    2. 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.
    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. Maani Sholeh, 1983. "La Duración del Desempleo y el Salario de Reserva de Varones Desempleados: El Caso Chileno," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 20(59), pages 101-112.
    5. Prasad, Eswar, 2003. "What Determines the Reservation Wages of Unemployed Workers? New Evidence from German Micro Data," IZA Discussion Papers 694, Institute of Labor Economics (IZA).
    6. John Davis & Patrick Minford, 1989. "Germany and the European Disease," Palgrave Macmillan Books, in: Joan Muysken & Chris Neubourg (ed.), Unemployment in Europe, chapter 12, pages 316-342, Palgrave Macmillan.
    7. Christensen, Björn, 2003. "Anspruchslohn und Arbeitslosigkeit in Deutschland (Reservation wage and unemployment in Germany)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 573-598.
    8. Liina Malk, 2015. "Determinants of reservation wages: empirical evidence for Estonia," Bank of Estonia Working Papers wp2014-8, Bank of Estonia, revised 20 Jan 2015.

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