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Title: Reservation Wages Revisited: Empirics with Canonical Models

Abstract: We study reservation wages using innovative longitudinal data on unemployment insurance (UI) recipients, guided by canonical search models. Individual-level expectations about the path of own reservation wages are, on average, consistent with realized reservation wage paths. This first result validates a basic premise in many models of job search by the unemployed. Second, we find that individual-level reservation wages fall faster when unemployment benefit durations are shorter, confirming a basic implication of search models. Third, unemployed job seekers set their initial reservation wages too high and reduce them too slowly relative to calibrated versions of Mortensen's (1977) canonical model. Fourth, reservation wages elicited early in unemployment spells are more powerful predictors of re-employment wages than are wages on the previous job, confirming the information value of survey-elicited reservation wages.