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Expectations, reservation wages and employment: Evidence from British panel data

Brown, S. and Taylor, K. (2008) Expectations, reservation wages and employment: Evidence from British panel data. Working Paper. Department of Economics, University of Sheffield ISSN 1749-8368

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Abstract

In this paper, we explore the relationship between expectations and reservation wages for a sample of unemployed individuals using panel data drawn from the British Household Panel Survey, 1996 to 2005. To be specific, we initially investigate the determinants of expectations relating to the individual´s financial situation and employment prospects over the next 12 months. Our findings suggest that job search and education are positively associated with financial optimism and confidence regarding future employment prospects. Conversely, the length of time out of employment and age are associated with pessimistic expectations. Propensity score matching techniques enable us to adopt a quasi experimental approach to ascertain how an individual´s expectations regarding their future financial situation as well as expectations regarding securing future employment influence the setting of reservation wages at the individual level. Optimism over future finances and future job prospects are associated with a higher reservation wage in both the matched and unmatched estimates. Furthermore, confidence over securing future employment is associated with a higher probability of actually gaining employment in the next period.

Item Type: Monograph (Working Paper)
Copyright, Publisher and Additional Information: The Sheffield Economics Research Paper (SERP) series offers a forum for the research output of the academic staff and research students of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by a departmental editor. However, the contents and opinions expressed remain the responsibility of the authors. All papers may be downloaded free on the understanding that the contents are preliminary and therefore permission from the author(s) should be sought before they are referenced.
Keywords: Employment, Financial Expectations, and Reservation Wages
Academic Units: The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) > Sheffield Economics Research Papers Series
Depositing User: Repository Officer
Date Deposited: 22 Oct 2009 15:41
Last Modified: 08 Feb 2013 16:59
Published Version: http://www.shef.ac.uk/economics/research/serps/yea...
Status: Published
Publisher: Department of Economics, University of Sheffield
Identification Number: Sheffield Economic Research Paper Series 2008007
URI: http://eprints.whiterose.ac.uk/id/eprint/9981

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