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Labor Market Slack in the United Kingdom

Author

Listed:
  • David N. F. Bell

    (University of Stirling, Scotland)

  • David G. Blanchflower

    (Peterson Institute for International Economics)

Abstract

This paper examines the amount of slack in the UK labor market. It examines the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment, which in our view are invalid. Without any evidence the MPC in its assessment of the output gap reduces the level of unemployment because of its claim that long-term unemployment has no effect on wages. We produce contrary evidence. The MPC further reduces the level of underemployment in the United Kingdom by half. We present arguments as to why we also think this inappropriate. We set out arguments on why we believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.

Suggested Citation

  • David N. F. Bell & David G. Blanchflower, 2014. "Labor Market Slack in the United Kingdom," Working Paper Series WP14-2, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp14-2
    as

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    References listed on IDEAS

    as
    1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, December.
    2. Alan B. Krueger & Judd Cramer & David Cho, 2014. "Are the Long-Term Unemployed on the Margins of the Labor Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 229-299.
    3. Freeman, Richard B, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 1-26, January.
    4. David Blanchflower & Stephen Machin, 2014. "Falling real wages," CentrePiece - The magazine for economic performance 422, Centre for Economic Performance, LSE.
    5. Kiley, Michael T., 2015. "An evaluation of the inflationary pressure associated with short- and long-term unemployment," Economics Letters, Elsevier, vol. 137(C), pages 5-9.
    6. Alan B. Krueger & Judd Cramer & David Cho, 2014. "Are the Long-Term Unemployed on the Margins of the Labor Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 229-299.
    7. David G. Blanchflower, 2004. "Self-Employment: More may not be better," NBER Working Papers 10286, National Bureau of Economic Research, Inc.
    8. David G. Blanchflower & Adam S. Posen, 2014. "Wages and Labor Market Slack: Making the Dual Mandate Operational," Working Paper Series WP14-6, Peterson Institute for International Economics.
    9. David G. Blanchflower & Adam S. Posen, 2014. "Wages and Labor Market Slack: Making the Dual Mandate Operational (DRAFT)," Policy Briefs PB14-10, Peterson Institute for International Economics.
    10. Robert J. Gordon, 2013. "The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery," NBER Working Papers 19390, National Bureau of Economic Research, Inc.
    11. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 441, European Central Bank.
    12. David N.F. Bell & David G. Blanchflower, 2011. "Underemployment In The Uk In The Great Recession," National Institute Economic Review, National Institute of Economic and Social Research, vol. 215(1), pages 23-33, January.
    13. David N. F. Bell & David G. Blanchflower, 2013. "How to Measure Underemployment?," Working Paper Series WP13-7, Peterson Institute for International Economics.
    14. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-1043, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Wages & profits
      by chris dillow in Stumbling and Mumbling on 2014-07-28 18:15:45

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    More about this item

    Keywords

    wages; underemployment; unemployment;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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