Great Expectations: Past Wages and Unemployment Durations is an interesting looking new paper from René Böheim, Gerard Thomas Horvath and Rudolf Winter-Ebmer.
The abstract reads:
Decomposing wages into worker and firm wage components, we find that firm-fixed components (firm rents) are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm rents in their wages, they might be mislead about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the infuence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm rents in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivitySo if you can't tell what is affecting your wages, you or your firm, you may make the mistake of thinking your wage is due to just your own effects and abilities and thus be overconfident and set a reservation wage that is too high should you become unemployed. This results in a longer period of unemployment should you be made redundant. I wonder how true this is of the New Zealand labour market. Do our unemployed have too greater expectations?