Great Expectations: Past Wages and Unemployment Durations

Rudolf Winter-Ebmer, RenÚ B÷heim, Tom Horvath
University of Linz, Austria

We examine the influence of wage expectations on unemployment durations for workers after exogenous lay-offs. To measure wage expectations, we use a wage decomposition that distinguishes between workers' and firms' wage components. Assuming that workers can only observe their own wages but do not know the overall distribution of firm rents, high firm rents can lead to distortions in workers' wage expectations, e.g. workers tend to attribute excessively high wages to their productivity. We estimate hazard rate models for unemployment duration in Austria and find that, in particular, younger workers do search longer if they come from a firm with a very high firm-wage component.

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