The unemployment benefit, unemployment duration and wage requirements of job seekers in New Zealand∗

This study provides the first empirical estimation of reservation wages in New Zealand, employing a specially designed survey of unemployed job seekers conducted in 1986. The study examines the responsiveness of reservation wages to unemployment duration by estimating a model of the reservation wage and unemployment duration. The N.Z case studied presents a test of reservation wage determination where there is the potential for the unemployment benefit to be collected indefinitely. In addition, since the benefit level in N.Z. is not tied to the job seeker's previous wage, it alleviates some measurement problems in earlier studies (especially those employing U.S. data). The results indicate that reservation wages were not responsive to unemployment duration, a result different from most studies with exhaustible unemployment benefits. The results further indicate that reservation wages were positively influenced by the benefit, and they in turn had a modest effect on duration.