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UNEMPLOYMENT INSURANCE AND RESERVATION WAGES By Feldstein & Poterba

The present paper examines the reservation wages reported by a large sample of unemployed individuals in the United States in May 1976. The majority of unemployed individuals report reservation wages´ that are at least as high as the wage they paid on their last job. Approximately one-fourth of all job seekers required a wage that is at least 10 percent higher than the wage on their previous job.  Our econometric evidence shows that level of unemployment benefits relative to previous wages has a powerful effect on the individual´s reservation wage.  These estimates imply that reducing net unemployment insurance benefits could significantly lower the average duration of unemployment and the relative number of long duration spells of unemployment.

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unemployment_insurance.pdf

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