5 June 2006
Reservation wages and the earnings capacity of lone and couple mothers:
Are wage expectations too high?
Mums' wage goals realistic
- Unreasonable wage expectations are not a major reason for mothers with dependent children failing to find employment.
- A new research paper (AIFS Research paper no.37) by Australian Institute of Family Studies' Deputy Director (Research), Dr Matthew Gray and Jennifer Renda, presents evidence on the extent to which non-working, lone and couple mothers who would like to work, can estimate the minimum wage which they need to be paid in order to accept a job offer (their reservation wage).
- The analysis is based on the Family and Work Decisions (FAWD) Survey of 2,405 mothers, receiving Family Tax Benefit, conducted by the Australian Institute of Family Studies in partnership with the Department of Families, Community Services and Indigenous Affairs.
- Reservation hourly wages appear to be quite modest. Couple mothers have an average gross reservation hourly wage rate of $15.18 per hour which is slightly higher than the average of $14.49 for lone mothers. To put the reservation wages into perspective, the federal minimum wage for full-time adult employees at the time of the FAWD 2002 survey was $11.35 per hour and the average hourly rate for non-managerial female employees was $19.10.
- On average, the reservation wages are below what it is estimated the mother would earn in the labour market if she were able to find employment. Seventy-one per cent of lone and 74% of couple mothers' reservation wages were equal to or less than the wages we estimate they would command in the labour market, given their education level and other characteristics that influence earnings.
- While the majority of the non-working lone and couple mothers were able to provide an estimate of their reservation wage, almost one-third were unable to provide a reservation income. This has important implications for our thinking about the impact of the financial incentives generated by the income support system. If many of those in receipt of an income support payment are unable to form an estimate of what they would need to earn to make it worthwhile accepting a job then they are unlikely to be responsive to changes in effective marginal tax rates at different points of the earnings distribution.
Reservation wages and the earnings capacity of lone and couple mothers: Are wage expectations too high?, by Matthew Gray and Jennifer Renda. (AIFS Research paper no.37 2006).
Contact:
Dr Matthew Gray
Deputy Director, Research
0400 525 325