Working Paper: CEPR ID: DP7974
Authors: René Böheim; Gerard Thomas Horvath; Rudolf Winter-Ebmer
Abstract: Decomposing wages into worker and firm wage components, we find that firm-fixed components (firm rents) are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm rents in their wages, they might be mislead about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm rents in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.
Keywords: job search; overconfidence; unemployment
JEL Codes: J3; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high firm rents (R38) | longer unemployment durations (J65) |
| younger workers with high firm rents (J29) | overconfidence in productivity (D24) |
| overconfidence in productivity (D24) | higher reservation wages (J39) |
| higher reservation wages (J39) | job search behavior (J68) |
| high person-specific components (C21) | quicker exit from unemployment (J65) |
| negative impact of high firm rents (R38) | longer unemployment durations among younger workers (J64) |
| misjudgment of wage distributions (J31) | impacts job search efficiency (J68) |
| misjudgment of wage distributions (J31) | impacts unemployment outcomes (J65) |