Reservation Wages, Offered Wages, and Unemployment Duration - New Empirical Evidence

This paper studies the reservation wages of unemployed persons and the wages offered them in Germany from 1987 to 1998, whereby special focus is placed on unemployment duration. The results of the study indicate that in contrast to reservation wages, offered wages decline considerably with duration of unemployment. This is the main reason that ratios of reservation wages to offered wages increase rapidly with duration of unemployment; on average, reservation wages begin to exceed offered wages after nine months of unemployment. Thus, the chance that long-term unemployed persons will receive a wage offer that is higher than their own reservation wage is extremely slight.