Research Discussion Paper – RDP 1999-02 Reservation Wages and the Duration of Unemployment


This paper investigates those factors which affect the duration of unemployment of Australian job seekers. The analysis uses data on individual job seekers from the Survey of Employment and Unemployment Patterns (SEUP) to assess the influence of a comprehensive array of personal and background characteristics on the duration of unemployment. The data set also provides job seekers' responses concerning their minimum acceptable (or reservation) wage.

The results suggest that around one-fifth of adult unemployed job seekers would be willing to work for a wage less than the legal minimum. It is also found that a job seekers' reservation wage has little effect on his/her unemployment duration. Instead, the binding constraint for job seekers appears to be that they receive very few job offers. Although legal minimum wages could be part of the story, more research is required to properly understand their role in the dynamics of the labour market.

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