Skill Shortages, Productivity Growth and Wage Inflation in UK Manufacturing
AbstractWe estimate the impact of skilled and unskilled labour shortages on productivity and wages in the United Kingdom. Skill shortages are higher on average and more variable over the business cycle in the United Kingdom than in comparable economies. Unskilled shortages are comparatively rare, so most of our work concentrates on skill shortages. The bulk of evidence suggests that shortages are related to educational attainment rather than the failure of firms to adjust wages. There are two potential effects of shortages on productivity. First, we argue that shortages add to the cost of employing skilled workers since a firm must wait longer than usual to fill its vacancies. This may lead firms to employ less skilled and more unskilled workers. Second, labour shortages make it less easy for firms to extract effort from their workers. Both of these effects reduce productivity. We provide empirical evidence from two panel data sets of UK manufacturing from 1980-89. We use data from 81 manufacturing industries and also from 33 engineering industries where there is better information on the skill composition of the workforce. Both data sets suggest that the growth of skill shortages in the 1980s reduced productivity growth by about 0.4% per annum (average productivity growth was 5% per annum). Unskilled shortages had no effect. Finally labour shortages might increase nominal wage growth by putting workers in a stronger bargaining position. Both our data sets suggest that skill shortages raised wage growth over the period by about 1% per annum (average wage growth was 7%).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 859.
Date of creation: Nov 1993
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Luigi Bonatti, 1999. "Growth, real interest, employment and wage determination," Department of Economics Working Papers 9907, Department of Economics, University of Trento, Italia.
- Neugart, Michael & Schömann, Klaus, 2002. "Employment outlooks: why forecast the labour market and for whom?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 02-206, Social Science Research Center Berlin (WZB).
- Maria De Paola & Vincenzo Scoppa, 2002. "Firms' Training Decisions and Unemployment in Italian Labour Markets," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 61(1), pages 103-126, June.
- Luigi Bonatti, 2003. "'Soft' growth and the role of monetary policy in selecting the long-run equilibrium path," Working Papers 0306, University of Bergamo, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.