RESERVATION WAGES AND UNEMPLOYMENT IN MANUFACTURING - A CASE-STUDY

The distribution and determinants of reservation wages are examined using a large, new data set of unemployed, skilled manufacturing workers. Reservation wage ratios are smaller than previous evidence would suggest while the period of unemployment and eligibility for unemployment compensation play their anticipated roles. In addition two new relationships are demonstrated. First, workers displaced from jobs outside their primary occupation have significantly lower reservation wages than those unemployed from their major occupation. Second, the requirement for a union job is shown to play a surprisingly large and important role in determining reservation wages. Finally, a simultaneous equation system captures the possibility of dual causation between reservation wages and months of unemployment. We find no evidence that higher reservation wages cause longer unemployment. © 1990, Taylor & Francis Group, LLC. All rights reserved.