The Effect of Job Heterogeneity on Reservation Wages

This paper develops a model of job search in which jobs differ in the amount of inspection and experience uncertainty. Under these circumstances, reservation wages may not remain constant or decrease over an unemployment spell. Even if job offer rates are constant over an unemployment spell, negative duration dependence of the reemployment hazard can occur when individuals search amongst a variety of jobs. Since this duration dependence is a result of time-varying unobserved heterogeneity, conventional methods for controlling for unobserved heterogeneity in reduced-form hazard models are inappropriate. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.