Does the COVID-19 Pandemic Shock Change the Reservation Wage?

The COVID-19 pandemic can change the reservation wage because of changes in people’s preferences due to the risk of infection, the rapid rise of work at home, or a worsened household economy. Furthermore, the changing reservation wage changes the decision to work, especially for the second wage earner. This study examines the effect of the pandemic shock on the reservation wage using the difference-in-differences method and Japanese data about job seekers’ desired wage. We find that after the first wave of the pandemic, the reservation wages for part-time (full-time) job increase (decrease) in urban prefectures. Especially, the reservation wages for part-time managerial (construction and mining) occupations increase (decrease). These managerial jobs include managing shops like restaurants and bars, where it is difficult to maintain sales during pandemic and a high risk of infection exists. People may not prefer these aspects. In contrast, the pandemic shock worsened the household economy. This may decrease the reservation wage in jobs where money is received instantly, such as part-time construction and mining jobs. Finally, contrary to our expectation, the reservation wage of professional jobs that seem to be familiar with work at home does not decrease. Furthermore, the decrease in reservation wages in the prior period increases the labor market participation rate.