MA Economics
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Browsing MA Economics by Subject "Anchoring"
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Item Restricted Do high reservations wages of undergraduates lead to educated unemployment? an experiment exploring the role of internal anchoring in the Philippine setting(2017-07) Inocencio, Ancilla Marie B.; Quimbo, Stella Luz A.The Philippines continues to face the issue of the unemployed educated youth, who comprise about half of the total unemployed, and a third of whom have tertiary education. This market inefficiency leads to loss in productivity and potential output. Recent studies have attributed this phenomenon to high reservation wages. This paper examines the issue further and hypothesizes that the youth have high reservation wages as a result of anchoring effects. The anchor value that young workers use as a starting point for first-time employment decisions, from which they could adjust from, is likely too high. Subsequent adjustments on the anchor influence their labor market decision. I conducted a field experiment on 266 economics students from the University of the Philippines, Diliman to simulate the job search process that incorporates anchoring effects and to obtain reservation wage estimates. To address the problem of endogeneity, I used two stage least squares, and find that high unemployment among the educated youth is largely due to high reservation wages. In the experiment, the unemployed have, on the average, reservation wages that are 43 percent higher than those who got employed. Results of two-stage least squares estimations show that a 1 percent increase in reservation wages predicts a 1.066 to 1.409 percent increase in the likelihood of being unemployed. Variations in the reservation wages of students from different year levels suggest learning effects: senior students have lower reservation wages compared to the younger year levels and the deviation of reservation wages from the mean wage distribution is lower by 23 to 58 percent. Learning appears to drive anchoring effects. Fourth year students have more realistic anchor values, since they have gained more experience and knowledge about the wage distribution through career talks or exposure to the job market. With more realistic wage expectations, the outcome of learning and anchoring, the likelihood of unemployment of older students is lower. With more information, reservation wages of the unemployed can be reduced to more realistic levels, thereby reducing unemployment by the same percent. The Department of Labor and Employment (DOLE) has several existing programs that provide the necessary information about the labor market and wage expectations, however, these are not properly disseminated. DOLE should use appropriate media to efficiently reach the youth and effectively reduce youth unemployment.