Reservation wages and labor supply

Survey measures of the reservation wage may reflect both the consumption-leisure trade-off and job market prospects (the arrival rate of job offers and the wage distribution). We examine what a survey measure of the reservation wage reveals about an individual's willingness to trade leisure for consumption. To this end, we combine the reservation wage measure from a large labor market survey with the reservation wage for a one-hour job that we elicit in an online experiment. The two measures show a strong positive association. For unemployed individuals, the experimental reservation wage increases on average by around one Euro for every Euro increase in the survey measure. For employed individuals, the association between the two measures is weaker and depends on their occupation-specific risk of unemployment. We show that these results are robust to selection into the experiment, and that demographic variables have a similar influence on both reservation wage measures. (C) 2021 Elsevier B.V. All rights reserved.