A microeconometric perspective of reservation wage and unemployment during the 1990's in Brazil

Abstract

The objective of this study is to analyze the job search activity of unemployed workers in the Brazilian labor market during the 1990’s, using microdata from the Pesquisa de Padrão de Vida (PPV) – Living Standards Measurement Survey – from IBGE (1996-1997). Two econometric methodologies are used. Firstly, we estimate a traditional wage regression model using Two Stage Least Squares (TSLS), and the results show that unemployment duration negatively affects the workers’ reservation wages, offering for the first time an empirical evidence for the hypothesis of non-stationarity of reservation wages. Secondly, we estimate proportional hazards models, and it is shown that the risk of leaving unemployment is more responsive to the reservation wage when compared to estimates for other countries. The results bring evidence about the key role played by the search model, based on the notion of reservation wage, on estimating the determinants of unemployment in Brazil during de 1990’s.