Reservation Wage Inelasticity to Experience
RCTReview
Gaining short-term work experience and earning higher wages could induce workers to upwardly adjust their minimum acceptable wage (reservation wage), leading to longer search durations and altered job match quality. Testing whether short-term work shifts reservation wages determines whether supply-side expectations explain post-program wage growth.
Picture this
Imagine working a short gig that pays well and then refusing to accept any future job unless it pays at least that same high rate. If workers raise their minimum price tag, they spend much more time unemployed holding out for premium offers. If their minimum acceptable pay stays unchanged, they continue accepting available jobs at prevailing rates while leveraging new contacts.
What the evidence says
Short-term work experience produced a statistically non-significant effect on monthly reservation wages (IV estimate = +$124.40, p > 0.10) and no significant increase in active job search duration (IV estimate = +0.089, p > 0.10), ruling out reservation wage shifts as the mechanism driving daily wage returns.
- Who was studied
- N = 221 urban male youth job seekers completing reservation wage modules in Lilongwe, Malawi.
- How
- Instrumental Variable (IV) estimation evaluating self-reported monthly reservation wages and active job search proportions over an 8-month post-intervention period.
What to do
Test reservation wage dynamics alongside job search intensity to rule out worker supply-side expectation shifts as the primary cause of wage growth.
From the source
"These results suggest that an increase in reservation wages is not likely an important pathway."
b23e842f-67cd-47d7-9b15-b6b6c8e557a2-Employment Exposure- Employment and Wage Effects in Urban Malawi.pdf