Great expectations: past wages and unemployment durations

Böheim, René; Horvath, Tom and Winter-Ebmer, RudolfORCID: (2011) Great expectations: past wages and unemployment durations. Labour Economics, 18 (6), pp. 778-785. DOI: 10.1016/j.labeco.2011.06.009

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Decomposing wages into worker and firm wage components, we find that firm-fixed components are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm-fixed components in their wages, they might be misled about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm-fixed components in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.

Item Type: Article in Academic Journal
Additional Information (public): Open Access funded by Austrian Science Fund (FWF)
Keywords: Unemployment; Job search; Overconfidence
Classification Codes (e.g. JEL): J3; J6
Research Units: Current Research Groups > IHS general publications
Date Deposited: 28 Jun 2016 11:54
Last Modified: 09 Jan 2019 14:07
DOI: 10.1016/j.labeco.2011.06.009
ISSN: 0927-5371

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