Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data

Using individual level panel data, we analyse the divergence between an unemployed individual´s reservation wage, as well as their expected wage, and their predicted market wage, focusing upon how job search activities influence the potential divergences. In addition, using propensity score matching techniques, we explore the implications of such divergences for future employment and wages. Our findings, which are consistent with job search theory, suggest that reservation wages (and expected wages) that are high relative to the predicted market wage influence both future employment and future wages.