Do reservation wages react to regional unemployment?

Reservation wages indicate the wage threshold for which individual workers are inclined to supply their working capacity. In important theoretical approaches it is assumed that this threshold depends on the unemployment rate. If this is true, the variation of reservation wages might be an important force behind the regional wage curve, which has been estimated in many empirical studies. Up to now, the connection of regional unemployment with reservation wages has not been tested, since research possibilities depend on survey data which were not available. With the Labour Market and Social Security study (PASS), a new large panel survey in Germany, information on regional reservation wages is available. The empirical analysis with this data opens up the black box of the wage generation process and delivers insights about its determining factors. The analysis is based on job matching and efficiency wage theory which are used to derive a relationship between unemployment and reservation wages.