NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Reservation Wage of Unemployed Persons in the Federal Republic of Germany: Theory and Empirical Tests

Wolfgang Franz

NBER Working Paper No. 578
Issued in November 1980
NBER Program(s):   LS

This study examines the determinants of the reservation wage of unemployed persons in the Federal Republic of Germany in 1976. The theoretical section presents the derivation of an optimal reservation wage and shows the source of an ambiguity of some explanatory variables. The data basis are unemployed persons leaving the unemployment register within a given sample week. For a subset of them, we know their reservation wage and a set of personal characteristics. Other variables, such as the wage offer distribution and demand side variables, are obtained by employing other data. Methodological problems, such as as a sample selection bias, are taken into account. As a result, individual characteristics and the wage offer distribution are dominant causes of the reservation wage, but demand side variables and the entitlement to unemployment compensation play minor roles.

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Document Object Identifier (DOI): 10.3386/w0578

Published: Franz, W. and K. Konig. "The Nature And Causes Of Unemployment In The Federal Republic Of Germany Since The 1970s: An Empirical Investigation," Economica, 1986, v53(210S), S219-S244

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