In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker.

An individual's reservation wage may change over time depending on a number of factors, like changes in the individual's overall wealth, changes in marital status or living arrangements, length of unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

, and health and disability issues. An individual might also set a higher reservation wage when considering an offer of an unpleasant or undesirable job than when considering a type of job the individual likes (see compensating differential

Compensating differential

Compensating differential is a term used in labor economics to analyze the relation between the wage rate and the unpleasantness, risk, or other undesirable attributes of a particular job...

).

Just as a worker has an incentive to search

Search theory

In microeconomics, search theory studies buyers or sellers who cannot instantly find a trading partner, and must therefore search for a partner prior to transacting....

 for a high wage when looking for a job, a consumer has an incentive to search for a low price when purchasing a good. The highest price the consumer is willing to pay for a particular product is that consumer's reservation price

Reservation price

In microeconomics, the reservation price is the highest price a buyer is willing to pay for goods or a service; or; the smallest price at which a seller is willing to sell a good or service...

.

External links

• The IAB info platform Reservation wages of the unemployed of the Institute for Employment Research, Nuremberg, Germany, presents scientific findings on "reservation wages".