Risk Aversion and Reservation Wages

21 Pages Posted: 25 Jun 2007

See all articles by Markus Pannenberg

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn

Date Written: May 2007

Abstract

This study examines the relationship between individual risk aversion and reservation wages using a novel set of direct measures of individual risk attitudes from the German Socio-Economic Panel (SOEP). We find that risk aversion has a significantly negative impact on the level of reservation wages. Moreover, we show that the elasticity of the reservation wage with respect to unemployment benefits is remarkably lower for risk-averse job seekers than for risk-loving job seekers. The results are consistent with an interpretation that risk-averse job seekers set their reservation wage levels sufficiently low, so that they accept almost every job offer.

Keywords: risk aversion, reservation wages, survey data

JEL Classification: J64, J65

Suggested Citation

Pannenberg, Markus, Risk Aversion and Reservation Wages (May 2007). IZA Discussion Paper No. 2806, SOEPpaper, No. 23, Available at SSRN: https://ssrn.com/abstract=994898

Markus Pannenberg (Contact Author)

University of Applied Sciences Bielefeld - Department of Business and Economics ( email )

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HOME PAGE: http://aix5.fh-bielefeld.de/~mpannenb/index.html

DIW Berlin - GSOEP ( email )

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Institute for the Study of Labor (IZA), Bonn

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