February 2006

IZA DP No. 1980: An Analysis of Reservation Wages for the Economically Inactive

published in: Economics Letters, 2007, 97 (1), 1-5

This paper uses unique data for the economically inactive to calculate elasticity estimates of the reservation wage and exit probability with respect to state benefits and the arrival rate of job offers, and finds that the inactive react in similar ways to benefit increases as the unemployed.