Reservation Wage
A Reservation Wage is a minimum wage level that a typical worker will accept to perform a job.
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- Counter-Example(s):
- See: Labor Economics, Unemployment, Compensating Differential, Search Theory, Reservation Price.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/reservation_wage Retrieved:2014-1-19.
- In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker.
An individual's reservation wage may change over time depending on a number of factors, like changes in the individual's overall wealth, changes in marital status or living arrangements, length of unemployment, and health and disability issues. An individual might also set a higher reservation wage when considering an offer of an unpleasant or undesirable job than when considering a type of job the individual likes (see compensating differential).
Just as a worker has an incentive to search for a high wage when looking for a job, a consumer has an incentive to search for a low price when purchasing a good. The highest price the consumer is willing to pay for a particular product is that consumer's reservation price.
- In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker.
2004
- (Cahuc & Zylberberg, 2004) ⇒ Pierre Cahuc, and André Zylberberg. (2004). “Labor Economics." MIT Press. ISBN:9780262033169
- QUOTE: According to the neoclassical theory of labor supply, every individual trades off between consuming a good and consuming leisure. The supply of individual labor is positive if the current wage exceeds the reservation wage, which depends on preferences and non-wage income. If labor supply is positive, the marginal rate of substitution between consumption and leisure is equal to the hourly wage.