Determinants of reservation wages: empirical evidence for Estonia

This paper provides an empirical analysis of the individual and macroeconomic determinants of reservation wages with a particular focus on the influence of unemployment duration. Data from the Estonian Labour Force Survey 2011–2013 and instrumental variable regression analysis are used for estimating the determinants of reservation wages. The findings indicate that personal characteristics, the household’s income level and the regional unemployment rate are important factors that affect reservation wage setting. In addition, it appears that unemployment duration has a significant negative influence on the reservation wage, which is mainly driven by men and older individuals