Reservation wages and the wage flexibility puzzle
Using micro data for the UK and Germany, we provide novel evidence on the cyclical properties of reservation wages and estimate that wages and reservation wages are characterised by moderate and very similar degrees of cyclicality. Several job search models that quantitatively match the cyclicality...
| Main Authors: | , , |
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| Format: | Journal article |
| Language: | English |
| Published: |
MIT Press
2024
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| Summary: | Using micro data for the UK and Germany, we provide novel evidence on the
cyclical properties of reservation wages and estimate that wages and reservation
wages are characterised by moderate and very similar degrees of cyclicality. Several job search models that quantitatively match the cyclicality of wages tend to
overpredict the cyclicality in reservation wages. We show that this puzzle can be
addressed when reservation wages display backward-looking reference dependence.
Model calibrations that allow for reference dependence match the empirically observed cyclicality of wages and reservation wages for plausible value of all other
model parameters. |
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