Estimating the reservation wage across city groups in Colombia: a stochastic frontier approach

Abstract

We use the stochastic frontier approach to estimate the reservation wage across different cities in Colombia. Using the Household Surveys from 2008–2019 for 23 urban cities, we find empirical evidence supporting search theory predictions that suggest a positive relationship between the reservation wage and both education level and net family labor income. We examine these relations across different quantiles of the distribution. We also find a gender gap in the reservation wage and explore this gap, controlling by the level of education and the presence of children in the household. In contrast to the results found in the literature for some developed economies, we find that the presence of children reduces the reservation wage of both women and men. This result is explained by the availability and affordability of childcare services between countries. Finally, we find that the reservation wage increases with the development and productivity of cities.