Estimation of the Distribution of the Reserve Wage

This paper uses a simple model of the labor supply to identify the distribution of the reserve wages. The distribution of the reserve wages of the non-employed population (Unemployed or out of the labor force) it's fundamental not only to understand the nature of the no-employment but to also define the wages that should be offered by the labor programs to attract the attention of different groups of the population. The paper uses data from the Quarterly Survey of Urban Employment to illustrate the methodology proposed Estimates show that the heavy reliance of household on labor income determines the levels of reserve wages to be much more lower than expected wages. It also shows that reserve wages for the inactive population dominates stochastically the distribution for unemployed, and in turn, the last one dominates stochastically the distribution for the employed. This implies that a good part of the employed population can't cover the cost of searching for better employment opportunities while unemployed have more room to wait.