Reservation Wage Rigidity Post-Employment Exposure
RCTClinical Trial
Standard job search models predict that obtaining high-paying short-term work experience causes workers to upwardly adjust their reservation wages. This upward revision can prolong unemployment spells if workers refuse lower-paying subsequent job offers.
Picture this
When a worker gets a high-paying temp job, one might expect them to permanently raise the minimum salary they are willing to accept, like a seller raising prices after one big sale. However, if reservation wages remain flexible or unadjusted, the worker quickly accepts subsequent jobs across the market without extending their unemployment period.
What the evidence says
Receiving short-term work experience resulted in a $124.40 increase in monthly reservation wages that was statistically insignificant (p > 0.10), and produced no statistically significant increase in the proportion of time spent actively searching for work (coefficient = 0.089, p > 0.10).
- Who was studied
- N = 221 urban Malawian male job seekers interviewed at the 8-month follow-up survey in Lilongwe, Malawi.
- How
- Instrumental variables (IV) estimation evaluating the impact of short-term work experience on self-reported monthly reservation wages and active job search duration.
What to do
Measure actual job search duration alongside reservation wage surveys to verify whether wage expectations create search frictions following temporary employment interventions.
From the source
"These results suggest that an increase in reservation wages is not likely an important pathway."
Employment Exposure: Employment and Wage Effects in Urban Malawi