Estimating the reservation wage across city groups in Colombia: A stochastic frontier approach

We use the stochastic frontier approach to estimate the reservation wage across different city groups in Colombia. We use the information of GEIH from 2008-2019 of 23 urban cities. We find empirical evidence in favour of the search theory predictions that suggest a positive relation of the reservation wage with the level of education and with the net family labour income. We also find a gender gap in the reservation wage and explore this gap controlling by the level of education and presence of children in the household. Contrary to the results found in the literature, we find that the presence of children reduces the reservation wage of women and men. Finally, we found that the reservation wage increases with the level of development and productivity of the cities, however, qualified workers in low-quality cities present higher reservation wages than median quality cities.

Interplay Between Reservation Wage and Unemployment Duration: Evidence from Jordan, Serbia, Montenegro, Ukraine and Moldova in 2015

This study investigates the reservation wage along with the unemployment duration of the youth in five countries from three groups of countries, the MENA countries, the WB countries and the CIS countries. The study assesses the determinants of the reservation wage and in particular how it is related to unemployment duration. The data comes from the School to Work Transition Survey in 2015 which is a survey that is labor market designed and includes labor market information on young people aged 15 to 29 years. The Two Stage Least Square (2SLS) model is conducted by using instrumental variables. This technique is used since we suspect that ednogeneity between the reservation wage and the unemployment duration is possible in our model. The results suggest the interplay between the reservation wage and the unemployment duration is countercyclical, the longer the unemployment duration the lower the reservation wage. Youth that lives in a household that receives other sources of income and remittances have lower reservation wages and youth that comes from a household with good financial situation and receives governmental financial assistance have higher reservation wages. Married youth with children have higher reservation wage and lower unemployment duration and more educated and trained youth has higher reservation wage.

Explaining High Unemployment in ECCU Countries

In recent years, unemployment rates in some ECCU countries have been among the highest globally. This paper evaluates several factors that could explain them, finding that high unit labor costs, in a context of strong unionization, are significantly associated with high structural unemployment, while the global crisis added a cyclical component. Our analysis also suggests that high-paid jobs in the public and tourism sectors, which have been growing considerably in recent decades, could have increased the reservation wage and lowered labor force participation. We find no indication that high structural unemployment is related to the phase out of EU preferences on bananas/sugar exports or to a skills mismatch. As expected, unemployment has been substantially, but only temporarily fueled by large natural disasters.

On the Very Idea of an Efficient Wage

This paper argues that the standard characterisation of the equity-efficiency trade-off as set out in this symposium by Joe Heath overstates the tension between these two values. The reason lies in the fact that economists tend to take individual labour supply preferences as given, which leads to a superficial analysis of the concepts of reservation wage and of economic rent. The paper suggests that we should instead think of reservation wages as variable and as influenced by social norms. Social norms play a double role in this context. First, they represent a constitutive element of market competition; second, they can be a determinant of income inequalities. From this perspective, a certain share of high reservation wages sustained by contingent inegalitarian social norms should count as economic rent. The last section of the paper strengthens this conclusion further by drawing a parallel between expensive tastes in consumption and a certain class of high reservation wages. To the extent that the latter are underpinned by social norms rather than efficiency considerations, not paying them is both just and efficient.