Reservation Wages: Explaining Some Puzzling Regional Patterns

41 Pages Posted: 11 Mar 2009 Last revised: 24 Sep 2009

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2008

Abstract

We use the Italian Labour Force Survey and the European Household Panel Survey to analyse the distribution of the reservation wages reported by jobseekers. In Italy, reservation wages appear to be higher in the South - the low income and high unemployment area of the country - than in the North and Centre. A similar, rather counterintuitive, pattern, however, can also be found in Finland, France and Spain. First, we show that the way in which these data are commonly collected generates double selection bias. Second, we show that this bias has a strong effect on the estimation of the geographical pattern of reservation wages in many countries. The size of this bias is substantial in Italy. When controlling for it, reservation wages are 10 per cent higher in the North and Centre than in the South.

Keywords: reservation wages, sample selection, regional differentials

JEL Classification: J64, J22, R23

Suggested Citation

Sestito, Paolo and Viviano, Eliana, Reservation Wages: Explaining Some Puzzling Regional Patterns (December 12, 2008). Bank of Italy Temi di Discussione (Working Paper) No. 696, Available at SSRN: https://ssrn.com/abstract=1356026 or http://dx.doi.org/10.2139/ssrn.1356026

Paolo Sestito (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Eliana Viviano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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