The largest market in national economies is the labor market. Labor market contracting is characterized by job search, often from unknown wage offer distributions. This paper reports experimental tests of finite horizon models of job search in which the wage offer distribution is unknown. Theoretically-optimal search from an unknown wage offer distribution can have the seemingly paradoxical pro...

The reservation wage is an integral part of most theories of involuntary unemployment. We use panel data to examine the empirical determinants of the reservation wage — in particular the inßuence of previous wages — and consider what this implies for the evolution of the natural rate of unemployment. We Þnd that previous wages have a signiÞcant but relatively small effect on reservation wages (...

In a laboratory experiment we show that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum wage leads to a rise in subjects’ reservation wages which persists even after the minimum wage has been removed. Firms are therefore forced to pay higher wages after the removal of the minimum wage than before its introduction. As a c...

The prevailing labor market models assume that minimum wages do not affect the labor supply schedule. We challenge this view in this paper by showing experimentally that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum wage leads to a rise in subjects’ reservation wages which persists even after the minimum wage has been ...

Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search and matching model. This paper provides an alternative perspective on the wage flexibility puzzle, explaining why the canonical model can only match the observed cyclicality of wages if the repla...

One of the most provocative findings in experimental economics is that many individuals seem to be willing to spend considerable resources to reward (punish) fair (unfair) behavior by others even though no direct material gain derives from such action. In Fehr and Falk (1999), individuals are either assigned the role of a worker or a firm manager.1 Even though competitive bidding should push th...

Although popular in some circles, efficiency wage models of the labour market have proved surprisingly difficult to test and direct evidence for the central tenets of the theory is rare to non-existent. In this paper we propose a simple test of the Shapiro-Stiglitz shirking model which is based on the following idea. In the traditional search model the distribution of accepted wages should be t...

I thank the referee for reading the paper and for alerting me that I have to phrase things more carefully in order to avoid misreading. Main concerns 1. The entire point is based on misreading the paper. The referee interprets the reservation wage R as relating to the unemployed or people engaged in home production, whereas I have written (I quote the entire paragraph, where the reservation wag...