Interplay Between Reservation Wage and Unemployment Duration: Evidence From North Macedonia

Being a country with relatively high unemployment rate of 23.7% (SSO, 2016) and especially high youth unemployment rate of 49.5% (SSO, 2016) peaks the necessity of a research of the causes of these states on the labor market in North Macedonia. The reservation wage is an issue that is very closely related to the unemployment rate, unemployment duration and placement of workers in the labor market. The theoretical background of this research is based on the job search theory of analyzing the frictional unemployment resulting from job hunting by workers (Haurin & Sridhar, 2003). More specifically, the reservation wage is a concept that has a relevance for modeling labor supply decisions, through its influence on transitions from non-employment to employment. Moreover, the reservation wage sets the grounds of the job search theory where a person stops its search for a job under conditions of uncertainty and imperfect information. This study will assess the determinants of the reservation wage, how the factors influence the fluctuations of the reservation wage, as well as the effects and the relationship among them. The literature review will be developed in three sections, starting with the basic determinants of the reservation wage classified as socio-demographic factors. The second section will cover the other sources of income within the households and the third will review the interplay between the reservation wage and the unemployment duration