The authors are especially indebted to an anonymous referee for helpful comments on earlier drafts of this article.
The Reservation Wage Unemployment Duration Nexus*
Article first published online: 18 AUG 2012
© 2012 The Department of Economics, University of Oxford and John Wiley & Sons Ltd
Oxford Bulletin of Economics and Statistics
Volume 75, Issue 6, pages 980–987, December 2013
How to Cite
Addison, J. T., Machado, J. A. F. and Portugal, P. (2013), The Reservation Wage Unemployment Duration Nexus. Oxford Bulletin of Economics and Statistics, 75: 980–987. doi: 10.1111/j.1468-0084.2012.00717.x
- Issue published online: 21 NOV 2013
- Article first published online: 18 AUG 2012
- Final Manuscript Received: June 2012
A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent.