Individual wealth, reservation wages, and transitions into employment

We investigate the relationship between financial wealth, reservation wages , and labor market transitions. Wealth is assumed to affect the level of th e reservation wage and the employment probability. We test for the validity of this assumption by estimating a simultaneous-equations model of reserva tion wages, labor market transitions, and wealth. The data used for the ana lysis relate to a sample of unemployed job searchers. We use subjective inf ormation on the reservation wage. Wealth is found to have a significantly p ositive impact on the reservation wage. The overall impact of wealth on the employment probability is negative though small.