The Federal Reserve Financial institution of New York’s July 2024 SCE Labor Market Survey exhibits a year-over-year improve within the common reservation wage—the bottom wage respondents could be keen to just accept for a brand new job—to $81,147, however a decline from a collection’ excessive of $81,822 in March 2024. On this put up, we examine how the current dynamics of reservation wages differed throughout people and the way reservation wages are associated to people’ expectations about their future labor market actions.
Reservation Wages
The SCE Labor Market Survey, which has been fielded each 4 months since March 2014 as a part of the broader Survey of Shopper Expectations (SCE), offers data on shoppers’ experiences and expectations relating to the labor market. The info, along with a companion set of interactive charts displaying a subset of the information that we acquire, are printed each 4 months by the New York Fed’s Heart for Microeconomic Information. As with different parts of the SCE, we report statistics not just for the general pattern, but additionally by numerous demographic classes, specifically age, gender, schooling, and family earnings. The underlying micro (individual-level) knowledge for the total survey are made out there with an eighteen-month lag.
Our measure of reservation wage comes from the next query within the SCE Labor Market Survey:
Suppose somebody supplied you a job at present in a line of labor that you’d think about. What is the bottom wage or wage you’d settle for (BEFORE taxes and different deductions) for this job?
This query is requested to all respondents (that’s, to those that are employed, unemployed, or out of the labor pressure). For many who are out of labor, this measure offers data on the tradeoff between out-of-work transfers (comparable to unemployment insurance coverage or means-tested authorities transfers) and anticipated salaries. For many who are presently employed, this measure is informative of the tradeoff between their present complete compensation bundle (together with the wage and non-wage facilities) and various compensation packages doubtlessly out there at different employers.
The chart under exhibits that the typical reservation wage has elevated by 31.4 % between March 2020 and July 2024. Observe, nevertheless, that this measure doesn’t account for inflation. Deflating the collection utilizing the Shopper Value Index (CPI) listed to 1 for March 2020, we discover that the typical actual reservation wage elevated by 8.2 % throughout the identical time interval, whereas in truth it declined within the 4 years previous to the pandemic. This exhibits that though a part of the rise in respondents’ reservation wages is because of inflation, there has nonetheless been an increase within the minimal compensation respondents require to just accept (new) job provides in actual phrases. Nevertheless, it’s price noting that the typical reservation wage in actual phrases has been primarily flat since early 2021.
The Common Reservation Wage Elevated Sooner Than Inflation since 2020
Observe: The blue line exhibits the typical reservation wage elicited each 4 months within the SCE Labor Market Survey and the purple line exhibits the identical collection deflated utilizing the CPI that’s listed to 1 for March 2020. The dashed line refers back to the begin of the COVID pandemic in March 2020.
Subsequent, we look at how this upward pattern in reservation wages various by respondents’ schooling and employment standing. The left panel of the chart under exhibits that the expansion in common reservation wages, relative to March 2020, was primarily pushed by the respondents with out a school diploma up till March 2022. This implied a compression in reservation wages throughout schooling ranges, since these with decrease schooling have decrease reservation wages.
Between mid-2022 and the top of 2023, reservation wages have grown quicker amongst school graduates, reversing the earlier pattern within the reservation wage compression. Nevertheless, because the finish of final yr, the reservation wages of respondents with out a school diploma have accelerated once more. In July 2024, the reservation wages of these with out a school diploma have been nearer to these of faculty graduates than they have been earlier than the onset of the pandemic.
In the correct panel of the chart under, we present that since mid-2022 the typical reservation wage of the non-employed grew quicker than that of employed respondents. This stands in distinction to the dynamics within the earlier two years, as we had mentioned in an earlier Liberty Road Economics put up. Total, as of July 2024, the typical reservation wage development of non-employed respondents has caught up with, and in reality exceeded, the typical of employed respondents because the onset of the pandemic.
Non-employed Shoppers and These with out a Faculty Diploma Skilled Sooner Reservation Wage Progress
Reservation Wages and Expectations about Labor Market Flows
We subsequent look at how reservation wages are linked to anticipated labor market actions. Each 4 months, the SCE Labor Market survey elicits respondents’ anticipated chance of being non-employed, employed, or employed with the identical employer (if employed) within the subsequent 4 months. Within the desk under, we relate these probabilistic expectations to reservation wages, controlling for the respondents’ time-varying observable traits and for particular person fastened results.
The outcomes present that staff with a 1 commonplace deviation ($44,614) greater reservation wage report 2.72 share factors (or 32 %) decrease chance of shifting to a brand new employer within the subsequent 4 months (column 1). Then again, column 2 exhibits that staff’ expectations about shifting into non-employment don’t statistically differ based mostly on their reservation wages. For non-employed staff (together with those that are unemployed and out of the labor pressure), we additionally observe that the typical chance of shifting into employment over the next 4 months doesn’t statistically differ based mostly on respondent’s reservation wages.
Reservation Wages Are Meaningfully Associated to Households’ Anticipated Job-to-Job Actions
| Employed | Employed | Non-Employed | |||
| (1) | (2) | (3) | |||
| Likelihood of Transferring to a New Job |
Likelihood of Transferring into Non-Employment |
Likelihood of Transferring into Employment |
|||
| Reservation Wage ($1,000) | -0.061*** (0.013) |
-0.011 (0.009) |
-0.022 (0.031) |
||
| Demographic Controls | ✔ | ✔ | ✔ | ||
| Particular person Mounted Results | ✔ | ✔ | ✔ | ||
| Dep. Var. Imply | 8.172 | 3.143 | 14.078 | ||
| R-squared | 0.612 | 0.604 | 0.774 | ||
| Observations | 7,253 | 7,245 | 1,164 |
Observe: Strong commonplace errors are included in parentheses. The dependent variable column is the employed respondents’ anticipated chance of shifting to a brand new job within the subsequent 4 months within the first column and their anticipated chance of shifting into non-employment within the subsequent 4 months within the second column. Within the third column the dependent variable is the anticipated chance of shifting into employment for non-employed respondents. All dependent variables are measured out of 100. The demographic controls embody respondent’s gender, annual family earnings, schooling, age, and job search standing if the respondent is non-employed. *p<0.1, **p<0.05, ***p<0.01.
Conclusion
Outcomes of the July 2024 SCE Labor Market Survey present a slight decline within the common reservation wage to $81,147 from a collection’ excessive $81,822 in March. Nevertheless, we discover that the typical reservation wage elevated quicker than inflation because the onset of the pandemic. Total, the patterns counsel a compression within the reservation wage distribution by schooling and employment standing. We additionally doc that reservation wages are meaningfully associated to households’ expectations about their future labor market actions.
Gizem Kosar is a analysis economist in Shopper Habits Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Davide Melcangi is a analysis economist in Labor and Product Market Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Sasha Thomas is a analysis analyst within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
cite this put up:
Gizem Kosar, Davide Melcangi, and Sasha Thomas, “An Replace on the Reservation Wages within the SCE Labor Market Survey,” Federal Reserve Financial institution of New York Liberty Road Economics, August 19, 2024, https://libertystreeteconomics.newyorkfed.org/2024/08/an-update-on-the-reservation-wages-in-the-sce-labor-market-survey/.
Disclaimer
The views expressed on this put up are these of the creator(s) and don’t essentially mirror the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the accountability of the creator(s).