In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker.
An individual's reservation wage may change over time depending on a number of factors, like changes in the individual's overall wealth, changes in marital status or living arrangements, length of unemployment, and health and disability issues. An individual might also set a higher reservation wage when considering an offer of an unpleasant or undesirable job than when considering a type of job the individual likes (see compensating differential).
Just as a worker has an incentive to search for a high wage when looking for a job, a consumer has an incentive to search for a low price when purchasing a good. The highest price the consumer is willing to pay for a particular product is that consumer's reservation price.
Famous quotes containing the words reservation and/or wage:
“Music is so much a part of their daily lives that if an Indian visits another reservation one of the first questions asked on his return is: “What new songs did you learn?””
—Federal Writers’ Project Of The Wor, U.S. public relief program (1935-1943)
“Superstition, bigotry and prejudice, ghosts though they are, cling tenaciously to life; they are shades armed with tooth and claw. They must be grappled with unceasingly, for it is a fateful part of human destiny that it is condemned to wage perpetual war against ghosts. A shade is not easily taken by the throat and destroyed.”
—Victor Hugo (1802–1885)