reservation wage


This paper develops a model of job search where some information of value
is revealed only after a job starts and where job prospects need not be
identical. Using results from the theory of multi—armed bandits, it is shown
that the optimal sampling strategy consists of an ordering of the job
prospects to be searched. Those jobs with greater 'residual' uncertainty
remaining when the job begins, will, ceteris paribus, be placed higher in the
sampling order and be associated with a lower reservation wage. Thus, if jobs
differed only with respect to this match uncertainty, reservation wages would
increase over an unemployment spell. In general, when search costs and wage
distributions also differ across jobs, the behavior of reservation wages over
an unemployment spell need not be monotonic.

Year of Publication
Date Published
Publication Language
Citation Key
McCall, B. (1988). Job Search, Matching Information, and the Behavior of Reservation Wages Over an Unemployment Spell. Retrieved from (Original work published July 1988)
Working Papers