Reservation Wages Revisited: Empirics with Canonical Models by Pawel Krolikowski

Join us for this week's Macroeconomics Research Seminar, Summer Term 2025.

Pawel Krolikowski, from the Federal Reserve Bank of Cleveland, will present this week's Macroeconomics seminar on Reservation Wages Revisited: Empirics with Canonical Models.

Abstract

We study reservation wages using innovative longitudinal data on unemployment insurance (UI) recipients, guided by canonical search models. Individual-level expectations about the path of own reservation wages are, on average, consistent with realized reservation wage paths. This first result validates a basic premise in many models of job search by the unemployed. Second, we find that individual- level reservation wages fall faster when unemployment benefit durations are shorter, confirming a basic implication of search models. Third, unemployed job seekers set their initial reservation wages too high and reduce them too slowly relative to calibrated versions of Mortensen’s (1977) canonical model. Fourth, reservation wages elicited early in unemployment spells are more powerful predictors of re-employment wages than are wages on the previous job, confirming the information value of survey-elicited reservation wages.

This seminar will be held on campus in 5B.307 at 1.30pm on Tuesday, 27 May 2025. This event is open to all levels of study and is also open to the public. To register your place, please contact the seminar organisers.

This event is part of the Macroeconomics Research Seminar Series.