English title: Misperceptions of Unemployment and Individual Labor Market Outcomes
Author(s): Ana Rute Cardoso - Annalisa Loviglio - Lavinia Piemontese -
Type: Journal article
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.
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Journal: IZA Journal of Labor Policy