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This paper is the first causal study using quasi-experimental methods to identify the effect of minimum wages on the reservation wages of non-workers. We exploit variation in regional exposure to the introduction of a high-impact minimum wage in Germany in 2015, combined with survey responses about wage acceptance thresholds of job seekers. Results show a 16% increase in reservation wages among non-employed job seekers at the low end of the distribution during the period immediately following the reform. Over time, however, wage expectations revert to pre-reform levels. Our findings are suggestive of learning during the search process and further imply that minimum wages do not necessarily result in higher short-run labor force participation, as job seekers adjust their reservation wages accordingly.

Important statistical issues pervade the evaluation of training programs’ effects for unemployed people. In particular, the fact that offered wages are observed and well-defined only for subjects w...

A dynamic equilibrium model of schooling, borrowing, and job search is developed to quantify the aggregate implications of student loans. In my model, risk-averse agents under debt tend to search less and end up with lower-paid jobs. Calibrating the model using micro data, I show that student loans have significant effects on borrowers’ job search decisions under the fixed repayment plan. The income-based repayment plan (IBR) largely alleviates the burden of debt repayment by insuring labor market outcomes, allowing borrowers to conduct a more adequate job search. In general equilibrium, IBR also increases social welfare by encouraging college attendance.

The common European labor market enhances allocative efficiency, but certain institutional features may also trigger inefficient migration. As a job in a high-income country entails generous welfare and social insurance entitlements, migrants’ reservation wages may lie below their opportunity cost of labor. We show that this gives rise to an externality when employers and migrant workers can pass some of their remuneration costs onto taxpayers. Once welfare benefit entitlement is secured, the reservation wage of the migrant rises, giving the firm an incentive to replace the worker with a similar migrant willing to accept lower pay. This leads to excess churn—a reallocation of labor within firms that simultaneously involves a flow of employees to unemployment benefits and the hiring of similar workers. Based on Norwegian data, we present evidence of high excess churn rates in firms with many workers from the new EU member states.

This paper exploits micro data on the joint distribution of consumption and wages to measure the Frisch labor supply elasticity at the extensive margin. The approach is based on a derived reservation property of the working decision that holds in a class of models where the labor choice is intratemporal: given consumption, there exists a unique wage level above which individuals work and below which they do not. It is shown that this property is robust to heterogeneity in borrowing constraints, discount factors, and wage processes within the class of models. Applying it directly to the observed joint distribution of consumption and wages, I find that the aggregate Frisch elasticity at the extensive margin is 0.4 and that across various demographic groups, the elasticity ranges from 0.2 to 0.6. However, the elasticity variation is more pronounced across consumption groups and the elasticity is decreasing in consumption within demographic groups. The latter findings imply that the measured elasticity critically depends on the composition of consumption groups in the sample.

The handling of unemployment is a central issue in cost–benefit analysis. Typically, the shadow price of employing an unemployed is derived by considering a marginal change in the employment constr...

Available literature on the subject indicates that the higher reservation wage and a lower market wage generally leads to lower probability of employment among the PWDs. The preset study carries out a systematic analysis of employment experiences of PWDs in different age cohorts and across gender, regions and social groups. A comparative study is also undertaken between the two time periods using 2001 and 2011 census data. In the last section of our study, the factors affecting work force participation rates for persons with disabilities is estimated, separately for rural and urban regions. The findings of the study suggest that there is lower employment outcomes for the persons with disabilities (PWDs). The work participation rate (WPR) has significantly increased in 2011 but it is attributed to increase in marginal workers. Thus, it can be inferred that there is growing informalisation in the disability sector as well. The SCs have the lowest employment rates and STs recorded the highest values of WPR. The female work force participation rates (WPR) is far lower, however female WPR has slightly increased in 2011. Further, the regression analysis of factors affecting workforce participation rates for persons with disabilities suggest that the rural and urban areas have different factors contributing to their employment. The findings reveal that individuals with disabilities have different employment outcomes depending on their disability types, gender and social compositions, levels of literacy, and whether they live in rural or urban regions. Understanding the economic experiences of PWDs is critical for disability advocates and policy-makers. The problems faced the persons with disabilities is multifaceted and require coordinated efforts to tackle them, at all the levels, social, economic and political.

Search frictions impede the labor market. Despite this indisputable fact, it is a priori unclear how job search costs affect search duration and unemployment: lower search costs make it easier to find a job, reducing search duration and unemployment, but may also increase the reservation wage, increasing search duration and unemployment. I collaborate with a recruiting company to directly test the effects of lower search costs in a field experiment among approximately 400 IT professionals in Switzerland. I find that workers are more likely to search for detailed job information, but not to file a job application, when search costs are lower. These findings are consistent with an increase in the reservation wage. Lower search costs might lead to picky workers, but fail to ultimately reduce search duration and unemployment.

We used an experiment to investigate whether people’s decisions over employment opportunities are affected by the ethnicity and sex of their potential future coworkers. University students (N = 1,406) were asked to state the lowest hourly wage rate at which they would be willing to accept a job on a campus food truck, where they would work alongside the food truck owner. The ethnicity and sex of the food truck owners were randomized across participants. Results showed no signs of coworker prejudice in terms of the probability of being interested in the job and reservation wage.

© 2019 Elsevier B.V. Using a laboratory experiment we examine how social comparisons affect behavior in a sequential search task. In a control treatment subjects search in isolation, while in two other treatments subjects get feedback on the search decisions and outcomes of a partner subject. The average level and rate of decline of reservation wages are similar across treatments. Nevertheless, subjects who are able to make social comparisons search differently from those who search in isolation. Within a search task we observe a reference wage effect: when a partner exits, the subject chooses a new reservation wage which is increasing in partner income. We also observe a social comparison effect between search tasks: subjects whose partners in a previous task searched for longer choose a higher reservation wage in the next task. Our findings imply that the provision of social information can change job-seekers search behavior.

The paper tests the effects of plan-making on job search and employment. In a field experiment with unemployed youths, participants who complete a detailed job search plan increase the number of job applications submitted (by 15 percent) but not the time spent searching, consistent with intention-behavior gaps observed at baseline. Job seekers in the plan-making group diversify their search strategy and use more formal search channels. This greater search efficiency and effectiveness translate into more job offers (30 percent) and employment (26 percent). Weekly reminders and peer-support sub-treatments do not improve the impacts of plan-making, suggesting that limited attention and accountability are unlikely mechanisms.

We measure extensive-margin labor supply (employment) preferences in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labor supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.

We propose a theory of gig economies in which workers participate in a shared labor pool utilized by multiple firms. Since firms share the same pool of workers, they face a trade-off in setting pay rates; high pay rates are necessary to maintain a large worker pool and thus reduce the likelihood of lost demand, but they also lower a firm’s profit margin. We prove that larger firms pay more than smaller firms in the resulting pay equilibrium. These diseconomies of scale are strong too; firms smaller than a critical size pay the minimal rate possible (the workers’ reservation wage), while all firms larger than the critical size earn the same total profit regardless of size. This scale disadvantage in labor costs contradicts the conventional wisdom that gig companies enjoy strong network effects and suggests that small firms have significant incentives to join an existing gig economy, implying gig markets are highly contestable. Yet we also show that the formation of a gig economy requires the existence of a large firm, in the sense that an equilibrium without any firms participating only exists when no single firm has enough demand to form a gig economy on its own. The findings are consistent with stylized facts about the evolution of gig markets such as ridesharing.

Understaffing is a problem within the Mississippi Department of Corrections, but Mississippi’s poor labor market, struggling economy, and deficient budget do not currently support the needs of the Mississippi Department of Corrections and demonstrate factors which limit the agency’s abilities to adequately staff its facilities. First, the state of Mississippi’s labor market performance ranks 48th overall among the 50 states and its unemployment rate was 5.8%, ranked 45th among the 50 states. Reservation wage represents an important factor in analyzing Mississippi’s labor market and the reported hourly wage for correctional officers was $13.88. This same wage is provided to arguably safer occupations than working as a correctional officer making it difficult to persuade labor force participants to accept offers in such a dangerous occupation. Mississippi reports a 36% annual turnover in correctional staffing representing struggles in retaining the staff currently in place. The Mississippi Department of Corrections will continue struggling to compete with other low-wage occupations until they can offer competitive wages. Second, Mississippi’s economy also ranked 48th among the 50 states. Since 2010, Mississippi’s population only grew 0.6% and its per capita income sat at about 70% of the national figure. Many of Mississippi’s prisons are built in struggling non-metropolitan areas limiting the pool of residents from which to hire. Improving staffing turns on working within the means of the state’s economic statistics and finding ways to improve the economy. Finally, Mississippi cut the MDOC’s budget by $215 million over the past six years. Funding is necessary to properly manage and operate a prison. The MDOC is not an industry which maintains any control over its own population and thus the more prisoners being housed, the more staff is needed, and the more funding required. Potential solutions to the understaffing issue exist, such as closing facilities, releasing prisoners, learning from what other states implement, and reconsidering funding. There is an opportunity for Mississippi to get ahead of this issue and address it before the problem is placed in the court’s hands or the state will have little to no say in how this issue is corrected.

This study analyzes the market wage, reservation wage, and unearned income on the probability of work participation of married women by using the longitudinal data of China Health and Nutrition Survey from 1989 to 2015 and a random effects probit model to address the heterogeneity problem. It is found the market wage positively affects the probability of work participation of married women; the reservation wage negatively affects the probability of work participation of married women; but the effect of unearned income is not statistically significant, which contrasts with most studies of developed countries. These effects differ by age and hukou (urban and rural) groups.

This paper develops a test for monotonicity of nonparametric regression models under endogeneity, which in its generality is novel in the literature. The test statistic, which is built upon a second order U-process, introduces `correction terms' based on control functions that purge the endogeneity. The test has a non-standard asymptotic distribution from which asymptotic critical values can directly be derived. Furthermore, the test statistic is extended to accomodate multivariate (exogenous) regressors. Consistency against general alternatives is proved and the finite sample properties of the test are examined in a Monte Carlo experiment. The test is used to formally assess the monotonicity of the reservation wage as a declining function of elapsed unemployment duration, which has implications for underlying job search models. This relationship is difficult to measure due to the simultaneity of both variables. Results for UK data indicate that reservation wage functions do in fact not decline monotonically thereby contradicting some partial equilibrium job search models.

In this paper, we examine how remittances, an outcome of labor mobility, affect labor market activities in Ghana using detailed household and individual-level data. This is important, considering the extensive literature that has documented the remittance–poverty reduction nexus. First, we find a strong negative association between household remittance-receiving status and individual labor supply decisions using instrumental variable estimation techniques. Second, we find the depressing effect of remittances on labor supply decisions to be much stronger in rural areas. Rural women who reside in remittance-receiving households are less likely to be in the labor force compared with those who do not reside in such households. Remittances have very little impact on labor supply decisions in urban areas. Our findings support that remittances can exacerbate long-term poverty reduction in rural areas through lower labor force participation, and as such rural-based and gender-based interventions may be needed to help redirect remittance income.

This paper explores the link between the prevalence of violent conflicts and extremely low female labor force participation rates in South Asia. The Labor Force Surveys from Bangladesh, Sri Lanka, India, and Pakistan are merged with the Global Terrorism Database to estimate the relationship between terrorist attacks and female labor supply. Geographical data on exposure to violence are used to compare administrative units exposed to attacks with those not exposed. The analysis finds that one additional attack reduces female labor force participation rates by about 0.008 percentage point, on average. Violence has less impact on male labor participation, thus widening the gender labor participation gap. The paper tests the added -- worker effect theory -- which posits that violence might increase female labor force participation as women try to make up for lost household income—and finds mixed evidence: greater prevalence of attacks may encourage married women to work more hours, but when the environment gets more risky, all women work fewer hours. The paper also finds that violence decreases female labor participation less where it was already higher and has a progressively greater impact on lowering female labor participation where the number of attacks is higher.

This study identifies three groups of job seekers in terms of the channels used to search for jobs: the formal channel involving only official procedures to obtain a job, the informal channel using only social contacts to obtain a job, and the joint channel leveraging both social contacts and official procedures. The analysis of a national sample survey of China shows that joint channel users, due to their relatively higher level of social capital, not only make more job search attempts but also obtain higher income than formal channel users. Meanwhile, joint channel users, because of their relative advantages in both human capital and social capital, not only make more job attempts but also obtain higher income than informal channel users. The two comparisons offer a new strategy to test the causal role social capital plays in labour market success, regardless of whether social capital is exogenous or endogenous to human capital.

We study an enforcement model in which, as soon as a Legislator grants an amnesty to low-rank criminals cooperating with the justice, top criminals react by bribing public officials in order to avoid being sanctioned. We show that, to prevent this form of subversion of law, the optimal policy must grant leniency not only to low-rank criminals but also to officials who plead guilty and report bribe-givers. By doing so, the policy increases the conviction risk not only for top criminals but also for their soldiers. This higher risk increases the reservation wage that top criminals must pay in order to recruit soldiers and therefore reduces the crime profitability (the bright side of subversion of law).

This paper analyses changes in labour market in rural Rajasthan after the introduction of MGNREGA in April 2006. The study attempts to answer the following questions: (1) How does MGNREGA influence rural labour market? (2) Which segment of the labour force seeks job under MGNREGA? (3) What are the MGNREGA-induced changes in agriculture and allied sectors? Marx’s concept of relative surplus population is used to analyse different categories of labours participated in MGNREGA. The study is based on a sample survey of 400 rural households randomly selected from four districts in Rajasthan. The study found that there was a substantial fall in the amount spent per rural household under MGNREGA in Rajasthan since 2011–2012. Moreover, MGNREGA has not been effective in attracting crisis-ridden farmers and farm labours because of its irregular employment and a lower daily wage rate as compared to spot wage. Rural labours, whose reservation wage is less than or equal to wage rate in MGNREGA, do supply labour to the Scheme, and a major share of the workforce in MGNREGA has never been part of the labour market nor do they intend to participate outside MGNREGA. It was found that large and medium farmers wanted to stop MGNREGA in agriculturally prosperous districts. Conversely, in agriculturally less developed districts in Rajasthan, large farmers did not hold MGNREGA responsible for labour shortage and wage hike in the farm sector.

We analyze a reform that introduced early access to subsidized childcare for 2-year-old children in Italy, exploring the effects on several measures of maternal labor supply and on children's cognitive outcomes. Our identification strategy exploits discontinuities in the eligibility rules and the staggered implementation of the reform. We find that the policy increased mothers' participation in the labor market and lowered the reservation wage of the unemployed, thus increasing their likelihood of finding a job. At the same time, the newly introduced childcare arrangement did not affect children's cognitive development, irrespective of their family background.

This article questions the consequences for France of a policy that would replicate part of the German experience since the mid-2000s and addresses the possibility of alternative strategies. Utilising the CGE model built by Beissinger et alii (2016), we implement a series of simulations to analyse the impacts of: (i) a German-type labour market reform lessening the reservation wage, and (ii) a policy which stimulates demand for non-tradable services. We show that: (i) structural differences could make a German-type policy less efficient and more painful (in terms of inequality) in France, and (ii) public action which directly targets demand for non-tradable services could provide an alternative policy.

Optimal strategies are known for the finite and infinite horizon discrete-time search with constant unit cost and without recall. These strategies were obtained in the theory of optimal stopping, b...

Unconditional basic income should guarantee that all residents have sufficient material conditions for their existence. Compared to other existing social security programs, basic income is unique in its simplicity. It also supports the individuals' freedom of use of their disposible time. The article analyzes the expected impact of the introduction of an unconditional basic income on the labor market. It also compares basic income to other social security programs (wage subsidies, targeted social programs, a negative income tax and tax credits) on a theoretical level from the perspective of a recipient. Unconditional basic income's effects on labor supply would be rather negative. However, relative to other social security programs, unconditional basic income can guarantee a higher or the same utility level, but it may not motivate to participate in the labor market. Additional positives are transparency and lack of incentives to cheat. The prospect of lower administrative costs depends on the specific basic income scheme in question.

Mexican wage inequality rose following Mexico's accession to the General Agreement on Tariffs and Trade/World Trade Organization in 1986. Since the mid-1990s, however, wage inequality has been falling. Since most trade models suggest that output prices can affect factor prices, this paper explores the relationship between output prices and wage inequality. The rise of inequality can be explained by the evolution of the relative price of skill-intensive goods relative to unskilled-intensive goods, but these prices flattened by 1999 and thus cannot explain the subsequent decline in wage inequality. An alternative trade model with firm heterogeneity driven by variations in the relative price of tradable relative to non-tradable goods can explain the decline in wage inequality. The paper compares this model’s predictions with Mexican inequality statistics using data on output prices, census data, and quarterly household survey data. In spite of the model's simplicity, the model’s predictions match Mexican variables reasonably well during the years when wage inequality fell.

We present an economy of farmers where food aid is warranted due to poverty traps triggered by nonconvex production sets. We model a food-aid intervention as a dynamic game between a food-aid manager and the farmers in a context of asymmetrical information. The food-aid manager is motivated by a relief objective and targets farmers suffering the poverty trap. The food-aid manager uses a self-targeting mechanism by providing the aid through a food wage in exchange for participation in the intervention's activities. Guided by the relief objective and targeting constraint, he fixes the food wage equal to the reservation wage of the farmers not suffering the poverty trap. Dependency traps will then happen every time there is a considerable technological and nutritional gap between farmers who are in and out of the poverty trap. When there is a gap, poor farmers earn more working for the reservation wage of the well-off farmers than by working in their own farm. Dependency can be overcome only if the food-aid program allows farmers to upgrade their productive technologies and catch up with those farmers who are out of the poverty trap.

This essay delivers two main innovations with respect to the existing literature. First, and foremost, by extending the work of Nicaise (2010) relative to the reservation wage to the case of overeducation, we propose a statistical test to discriminate between alternative theoretical interpretations of the determinants of overeducation through the Heckman sample selection procedure. Second, the essay provides the first available economic analysis of the consequences of the educational mismatch in Italy as based on AlmaLaurea data, the largest and richest data bank available in the country. The data includes a large number of university graduates enrolled in a given year before the Bologna reform and asks a large number of questions allowing us measuring among others the quality of education from high school. This wealth of information is a condition to provide the most comprehensive, accurate and reliable assessment of overeducation in the country. The educational mismatch 5 years from graduation is relatively high—at 11.4 and 8% for overeducation and overskilling, respectively—by EU standards. Ceteris paribus the parents of the mismatched have lower educational levels according to school tracking. Most humanities and social sciences degrees but also geology, biology and psychology are associated with both types of mismatch. The quality of education also correlates to the educational mismatch. We find a non-conditional wage penalty associated to overeducation and overskilling of 20 and 16% and a conditional one of about 12 and 7%, respectively. The Heckman sample selection model returns a slightly higher sample selection corrected wage penalty, supporting not only the job competition and job assignment models, but also the human capital model. Other concurrent statistical tests point to the difficulty that the educational system faces in providing work-related skills to graduates.

Marketing strategies are often tied to how consumers spend time (e.g., waiting in lines, searching across stores) in return for money (e.g., receiving a discount). Viewing such time-money tradeoffs in terms of a reservation wage rate for consumers, we identify a wage-rate asymmetry between two elicitation procedures: (a) Money-Elicit (MEL): state the minimum amount of money, M, that you would accept in return for spending a given number of hours, T; and (b) Time-Elicit (TEL): state the maximum number of hours, T, that you would spend in return for accepting a given amount of money, M. While these procedures are normatively equivalent, we propose that TEL (vs. MEL) wage rates are higher because time scarcity receives a higher weight in TEL judgments. In eight studies including both hypothetical and real settings, we document the wage-rate asymmetry, the time scarcity process, and a downstream consequence of TEL (vs. MEL) reducing the likelihood of accepting a time-money tradeoff. We discuss the implications for practice, and for research on wage rates, time versus money, procedural invariance, and scarcity.

Having a larger high-skill workforce increases productivity, so it is useful to understand how workers self-select into high-paying technology (tech) jobs. This study examines how workers decide whether or not to pursue tech, through an experiment in which subjects are offered a short programming job. Despite the persistent gender gap in computer science fields, female subjects in this incentivized experiment are equally confident and willing to program. The most important determinants of the ``reservation wage" for college students to do computer programming is whether they enjoy it, and also their opportunity cost of time. Two treatments were introduced to increase confidence. Randomly assigned extra information about the programming task has no effect. In some circumstances, an encouraging message lowers confidence and raises the reservation wage subjects require to do programming.

Worker shortages in US agricultural field jobs are widespread. Since US domestic workers typically forgo agricultural field jobs, their participation could potentially alleviate the labor shortfalls. We used an attribute-based discrete choice experiment administered before and during COVID-19 to evaluate US domestic workers' willingness to accept agricultural field jobs and determine domestic workers' valuation for non-pecuniary benefits. Results indicate that before the pandemic, domestic workers have an average reservation wage of \$23.57 per hour, which is substantially larger (\$9.58 or 68\%) than the 2019 national average wage rate of \$13.99 for field work, but similar to the national average non-farm wage rate of \$23.51 per hour. This partially explains why a minority of field workers are born in the United States. However, non-pecuniary benefits for insurance, housing, food allowance, and transportation notably increase domestic workers' willingness to accept agricultural field jobs by reducing mean reservation wage. Respondents' willingness to accept agricultural field work increased during the COVID-19 pandemic, particularly for respondents with previous field-work experience, those that prefer domestically produced food, and those who believe food is a national security issue. Respondents that lost employment or income due to the pandemic had the lowest mean WTA of \$17.16 and \$18.79 without any additional non-pecuniary benefits. The results generally suggest that the non-pecuniary benefits clearly increase domestic workers willingness to accept agricultural field jobs. Hence, it is possible to entice domestic workers to work in agricultural fields, with a combination of reasonable wages and mix of non-pecuniary benefits.

We investigate the labor force participation rate of married women from Asian developing countries within a traditional labor supply model. Under this model, a woman works if the wages she receives if she works (her market wage) exceed the wage she must receive in order to work (her reservation wage). We show that the same factors that lead to higher labor force participation rates of native married women also lead to high labor force participation rates of Asian immigrant women. We also show that conditional on these factors, married Asian immigrant women have higher labor force participation rates than married native women, with the important exception of Japanese women. We investigate a number of hypotheses for this and conclude that a family’s intended permanence in the U.S. plays an important role.

We relate gender differences in willingness to commute to the gender wage gap. Using French administrative data on job search criteria, we first document that unemployed women have a lower reservation wage and a shorter maximum acceptable commute than their male counterparts. We identify indifference curves between wage and commute using the joint distributions of reservation job attributes and accepted job bundles. Indifference curves are steeper for women, who value commute around 20% more than men. Controlling in particular for the previous job, newly hired women are paid after unemployment 4% less per hour and have a 12% shorter commute than men. Through the lens of a job search model where commuting matters, we estimate that gender differences in commute valuation can account for a 0.5 log point hourly wage deficit for women, that is, 14% of the residualized gender wage gap. Finally, we use job application data to test the robustness of our results and to show that female workers do not receive less demand from far-away employers, confirming that most of the gender gap in commute is supply-side driven.

This is the supplemental material to the paper titled "Job Search under Debt: Aggregate Implications of Student Loans." It includes additional theoretical and quantitative results. It also includes illustration for the data summary and the numerical algorithm for our model solution.

German wages have not increased very rapidly in the last decade despite strong employment growth and a 5 percentage point decline in the unemployment rate. Our analysis shows that a large part of the decline in unemployment was structural. Micro-founded Phillips curves fit the German data rather well and suggest that relatively low wage growth can be largely attributed to low inflation expectations and low productivity growth. There is no evidence – from either aggregate or micro-level administrative data – that large immigration flows since 2012 have had dampening effects on aggregate wage growth, as complementarity effects offset composition and competition effects.

The objectives of this study are to understand the determinants of reservation wages and measure the gap between reservation and market wages in North Macedonia. The study makes use of recently collected information on reservation wages in the Labor Force Survey 2016 and 2017. The analysis relies on ordinary least squares, propensity score matching, Heckman-corrected estimates, and panel fixed effects. The results suggest that it is mainly supply factors that shape reservation wages in the country. Higher education achievement sizably increases future wage expectations, while age and longer spells of unemployment reduce them. Demand factors are found to be insignificant for reservation wage formation. Observed by skill level, the results suggest that low-skilled individuals consistently value their skills higher than what the market offersand set too high expectations. These circumstances are aggravated in cases where the household is well-off and/or receives remittances. By contrast, highly skilled individuals, despite maintaining a positive reservation wage gap, have a propensity to accept market wages even when they fall below their reservation wage, likely because these workers fear rapid depreciation of their skills.

This paper documents recent labor market performance in the Latin American region. The paper shows that unemployment, informality, and inequality have been falling over the past two decades, though still remain high. By contrast, productivity has remained stubbornly low. The paper, then, turns to the potential impacts of various labor market institutions, including employment protection legislation (EPL), minimum wages (MW), payroll taxes, unemployment insurance (UI) and collective bargaining, as well as the impacts of demographic changes on labor market performance. The paper relies on evidence from carefully conducted studies based on micro-data for countries in the region and for other countries with similar income levels to draw conclusions on the impact of labor market institutions and demographic factors on unemployment, informality, inequality and productivity. The decreases in unemployment and informality can be partly explained by the reduced strictness of EPL and payroll taxes, but also by the increased shares of more educated and older workers. By contrast, the fall in inequality starting in 2002 can be explained by a combination of binding MW throughout most of the region and, to a lesser extent, by the introduction of UI systems in some countries and the role of unions in countries with moderate unionization rates. Falling inequality can also be explained by the fall in the returns to skill associated with increased share of more educated and older workers.

This paper examines the effect of fertility on parental labor force participation in a developing country in the Balkans, with particular attention to the intervening role of childcare provided by grandparents in extended families. To address the potential endogeneity in the fertility decision, the analysis exploits the Albanian parental preference for having sons combined with the siblings' sex-composition instrument as an exogenous source of variation. Using a repeated cross-section of parents with at least two children, the analysis finds a positive and statistically significant effect of fertility on parental labor supply for parents who are more likely to be younger, less educated, or live in extended families. The IV estimates for mothers show that they increase labor supply, especially hours worked per week and the likelihood of working off-farm. Similarly, fathers' likelihood of working off-farm and having a second occupation increase as a consequence of further childbearing. The heterogeneity analysis suggests that this positive effect might be the result of two plausible mechanisms: childcare provided by non-parental adults in extended families and greater financial costs of maintaining more children.

We analyze to what extent work meaning – the significance of a job for others or for society – increases the willingness of employed and unemployed individuals to accept a job. To this end, we elicit reservation wages for a one-hour job and randomly vary its description as having either ”high” or ”low” meaning. Our subjects participate in the ”Panel Study of Labour Market and Social Security” (PASS), which comprises a random draw from the German population and a random draw of unemployed individuals from the unemployment register. We can thus link subjects’ experimental behavior to rich survey data and control for selection into the experiment. For subjects who consider work meaning as very important (around one third of PASS respondents), high-meaning reduces the reservation wage by around 18 percent. By contrast, among unemployed individuals, work meaning increases the reservation wage by around 14 percent. We discuss how work meaning can have both positive and negative effects on labor supply when it interacts with fairness concerns or work norms.

Remittances from labor migrants abroad have become the largest component of financial flows to developing countries. While they are an important source of foreign currency for low-income countries, the impact of outmigration and remittances on the economic development of the sending country is ambiguous. To narrow this knowledge gap, this paper examines their impact on the domestic labor market, using the case of Tajikistan – a labor migrant contributor and remittance dependent country in Central Asia. Specifically, we estimate the impact of international migration and receipt of remittances on the labor supply decisions and employment of the family members left behind. To ensure rigorous inferences, we apply a control function approach using unique high-frequency household panel data. Our method enables us to correctly address the simultaneity of migration/remittance and labor supply decisions of the left-behind members. Our main estimates are that sending migrants reduces the labor supply of the left-behind members by 5.4 percentage points, and that receiving remittances reduces it by 10.2 percentage points, respectively. These findings suggest that the reservation wage effect of having a migrant member and receiving remittances is large and surpasses other positive effects they might have.

We examine how the reservation wage varies with the waiting time to apply for unemployment benefits. We find that the waiting time has a negative effect on the reservation wage, suggesting that unemployment generates significant and immediate harm for the unemployed. Our results are unique in that they are based on short-term, incomplete spells of unemployment that are precisely measured in weeks. We address the endogeneity of the waiting time using instrumental variables associated with errors in the unemployment insurance (UI) claim, and note that our estimates are likely a lower bound for the welfare declines experienced by the unemployed.

Using panel data from the Russian Longitudinal Monitoring Survey for 2006-2014, the paper investigates reservation wages setting in the Russian labor market. The sample includes non-employed individuals wishing to get a job (both searchers and non-searchers). The first part of the paper provides a survey of previous empirical studies, describes data and analyzes subjective estimates of reservation wages in comparison with various objective indicators of actual wages. The analysis shows that wage aspirations of the majority of Russian non-employed individuals are overstated. However their wage expectations are rather flexible and decrease rapidly as the search continues that prevents high long-term unemployment. The second part of the paper provides an econometric analysis of main determinants of reservation wage and its impact on probability of re-employment and wages on searchers’ new jobs.

Models of unemployment and monetary policy usually assume constant participation. Incorporating a participation decision into a standard New Keynesian model with matching frictions, we show that market tightness becomes endogenously more volatile because both the opportunity cost of home production and the reservation wage vary with participation. The model can simultaneously explain the low volatility of participation, the high volatility of unemployment, and a procyclical workers׳ outside option of working. A policy of strict inflation targeting is close to optimal, and increasing the response of the interest rate to inflation does not have a large impact on the volatility of unemployment because of the endogenous response of participation.

We estimate that unemployment insurance (UI) extensions reduce reemployment wages using sharp age discontinuities in UI eligibility in Germany. We show this effect combines two key policy parameters: the effect of UI on reservation wages and the effect of nonemployment durations on wage offers. Our framework implies if UI extensions do not affect wages conditional on duration, then reservation wages do not bind. We derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects. The effect of UI on wages we find arises mainly from substantial negative nonemployment duration effects. (JEL J31, J64, J65)

Demographic and institutional elements, as important drivers of the housing market, should not be neglected since it is not only financial and monetary elements that matter in the case of the housing market. In this context, one relationship, which still remains unclear, is the relationship between the housing and the labour markets. Some research has been undertaken to support the hypothesis that high rates of homeownership lead to high unemployment via increases in the reservation wage. However, further research is needed to address the possible implications of the institutional settings of the labour market in the dynamics of the housing market. The aim of this paper is to bring some light on the link between both markets. In particular, this contribution explains how the housing cycle could be ‘amplified’ via a new channel, i.e. economic precariousness, which is closely related to job insecurity. Subsequently, we provide evidence in the case of five developed economies, Ireland, the Netherlands, Spain, the United Kingdom and the United States, over the period 1985-2013.

For more than a decade, South Africa has experienced falling labor force participation rates while maintaining relatively high unemployment rates, particularly among its youth. This paper examines the role of labor costs from the perspectives of employers and workers by combining information from national accounts and household surveys. To better understand the employer’s perspective, we calculate the labor costs and set them in relation to productivity, thereby deriving unit labor costs. To analyze the worker’s perspective, we disentangle the tax-wedge and further work-related costs borne by workers. The results show that labor costs in the South African economy increased disproportionally relative to productivity. This is largely due to labor cost growth in the manufacturing and industry sector. An international comparison of unit labor costs shows that other countries with similar unit labor cost levels have not registered such a strong increase over the same period. To identify causes for the increase in labor costs, we decompose the determinants using household data and follow the development of work-related costs over time. We compare the results for South Africa to a set of comparator countries and identify unionization, specific sectors and skill mismatch as particularly influential for South Africa. The results show that stagnating productivity may be associated with a lack of highly qualified workers, also in comparison with benchmark countries. This note was prepared as a background note to the South Africa Systematic Country Diagnostic.

The literature on the gender wage gap and wage discrimination has exclusively analyzed observed wage differences, ignoring inactive or unemployed individuals. In order to obtain a more complete overview of gender wage differences, this paper analyzed inactive or unemployed individuals in terms of offered and reservation wages in Spain in the years 1994, 2000, and 2006. The results show that the observed wages give a more positive perspective of the gender wage gap than offered ones. Furthermore, the existence of an important gender wage gap for reservation wages has been noted, which is possibly because women take charge of household and family caregiving tasks to a greater degree than men. The results show that Spanish women had higher reservation wages and lower offered wages than men, which explains their lower participation in the labor market.