On the Determinants of Reservation Wages: An Empirical Specification

摘要

Under the assumption that the wage distribution is sufficiently characterized by the first and second moment, this paper develops an empirically tractable model where the above two pieces of information regarding the wage offer distribution play key roles in explaining the formation of reservation wages. This study demonstrates that the variance of the wage distribution, as a measure of the probability of finding a job, plays a significant role in explaining the formation of the reservation wages among the unemployed. The study also indicates that the reservation wages are linearly related with the mean expected wages, and the elasticities are less than unity. The universe of the study includes white and black non-enrolled unemployed males from the 1979 NLS Youth Cohort.