Viewing Job-Seekers' Reservation Wages and Acceptance Decisions through the Lens of Search Theory

Using a new body of data, we construct an account of a labor market with on-the-job search where 1. The log-standard deviation of the distribution of wages offered to an individual job-seeker is 0.075, far below the dispersion of wages in the cross section but far above the tiny dispersion that the traditional search model implies. 2. The reservation wage for unemployed job-seekers implied by their acceptance decisions is 91 percent of their average earnings and unemployment compensation, somewhat above estimates from preferences and UI rates and far above the low (sometimes negative) levels implied by earlier work on on-the-job search. 3. Reported reservation wages are biased a moderate amount above actual reservation wages. We conclude that the data support a version of the on-the-job search or job-ladder model that fits all of the criteria that search economists have proposed for judging the success of the model. Our overall conclusion is that the on-the-job search model explains old and new findings about the response of job-seekers to dispersion in wage opportunities in a comfortable way.