Thursday, 10 November 2016

Misperceptions of unemployment and individual labor market outcomes

an article by Ana Rute Cardoso (IAE-CSIC, Autonomous University of Barcelona), Annalisa Loviglio and Lavinia Piemontese published in IZA Journal of Labor Policy Volume 5 Article 13 (2016)


We analyze the impact of misperceptions of the unemployment rate on individual wages, using the European Social Survey.

We follow a threefold strategy to tackle potential endogeneity problems, as the model includes the following: controls for worker’s ability, the regional unemployment rate, and country fixed effects. We estimate interval regression models.

When subjective perceptions overstate the country unemployment rate, a one percentage point gap between the perceived and the actual rates reduces wages by 0.4 to 0.7 %. We discuss a potential mechanism. A pessimistic view of the labor market leads to concern over own employment prospects, lowering perceived bargaining power and reservation wages.

JEL Classification: J31 D80

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