We analyze the impact of misperceptions of the unemployment rate on individual wages, using the European Social Survey. We follow a threefold strategy to tackle potential endogeneity problems, as the model includes the following: controls for worker’s ability, the regional unemployment rate, and country fixed effects. We estimate interval regression models. When subjective perceptions overstate the country unemployment rate, a one percentage point gap between the perceived and the actual rates reduces wages by 0.4 to 0.7 %. We discuss a potential mechanism. A pessimistic view of the labor market leads to concern over own employment prospects, lowering perceived bargaining power and reservation wages.
Misperceptions of unemployment and individual labor market outcomes / Cardoso, Ana Rute; Loviglio, Annalisa; Piemontese, Lavinia. - In: IZA JOURNAL OF LABOR POLICY. - ISSN 2193-9004. - ELETTRONICO. - 5:1(2016), pp. UNSP 13.1-UNSP 13.22. [10.1186/s40173-016-0069-6]
Misperceptions of unemployment and individual labor market outcomes
Cardoso, Ana Rute
;Loviglio, Annalisa;
2016
Abstract
We analyze the impact of misperceptions of the unemployment rate on individual wages, using the European Social Survey. We follow a threefold strategy to tackle potential endogeneity problems, as the model includes the following: controls for worker’s ability, the regional unemployment rate, and country fixed effects. We estimate interval regression models. When subjective perceptions overstate the country unemployment rate, a one percentage point gap between the perceived and the actual rates reduces wages by 0.4 to 0.7 %. We discuss a potential mechanism. A pessimistic view of the labor market leads to concern over own employment prospects, lowering perceived bargaining power and reservation wages.File | Dimensione | Formato | |
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