In conclusion, the reservation wage gap in North Macedonia is persistent and statistically significant. In cross-individual context, it is about 13% of the market wage, corroborating the notion that it represents a binding constraint for people to search for and accept a job. However, the gap – as opposed to the level – of the reservation wage, declines with education, suggesting that reservation wage rises with education, but learning and information-spreading mechanisms are more effective for low-skilled individuals to better align their expectations with reality. Still, persons who experienced periods of both unemployment and employment generally maintain a high reservation wage, with somewhat downward adjustment reflecting the learning experience. This is especially true for lower-skilled individuals.

# **7. Conclusion**

This study explores, for the first time, the nature of reservation wages in North Macedonia, by taking advantage of newly collected information from the Labor Force Survey 2016 and 2017. Given the fairly scant information on reservation wages, we mainly use it in a pooled cross-section context, while being aware of the limitations it imposes onto our conclusions. However, a number of interesting observations emerge, that suggest avenues for future research.

Results suggest that it is mainly supply factors that shape reservation wages in the country. That is, higher education sizably increases future wage expectations, especially when persons are younger and with short unemployment spells, hence with lower probability of having past work experience. Then, the reservation wage declines with age and with longer spells of unemployment. On the other hand, the insignificance of demand factors for reservation wage formation may suggest that job seekers either lack information about local conditions, or – more importantly – they are reluctant to fast accommodate, considering them substandard. The latter is especially the case for low-skilled individuals, who consistently value their skills higher than what the market offers and set too high expectations. These circumstances are aggravated in cases where the household is well-off and/or receives remittances. On the other hand, highly skilled individuals, despite maintaining a positive reservation wage gap, have a propensity to accept market wages even when they fall below their reservation wage. It is likely that hope and self-appreciation are most rapidly lost among the tertiary educated.

The findings of this study, combined with expanded future research, may be useful for policy makers in several ways. For example, the study disputes the widespread perception that reservation wages are only binding for high-skilled individuals and confirms this is also true for low-skilled individuals. The former are more likely to fear the accelerated depletion of their human capital and agree to work for a lower wage than their reservation wage. The latter are likely to persistently misjudge their prospects or anchor their reservation wage on their beliefs rather than on the observed wage. Therefore, increasing labor market information is more relevant for lower-skilled individuals. Still, the mechanism for the 22