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The Role of Sectoral Interactions in Wage Determination in the UK Economy

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  • Lee, Kevin C
  • Pesaran, M Hashem

Abstract

A multisectoral union-firm model of wage-setting is developed to analyze intersectoral interactions that take place through expectations of outside wage opportunities in the economy as a whole. The technical issues involved in the solution and estimation of models of this type are discussed, noting the significance of the assumed structure of information across sectors. These issues are investigated empirically using data for sixteen industrial sectors o f the UK economy. It is found that (1) expected outside wages exert an important influence on real wages in all sectors; (2) pressure on wa ges which are internal to the sector are found primarily outside the "service-producing" sectors; (3) unemployment rates and unemployment benefits show up significantly only in a few sectors; (4) there are complicated dynamic adjustments influencing wage formation across th e sectors; and (5) the aggregate wage equations considered in the pape r are subject to serious aggregation problems. Copyright 1993 by Royal Economic Society.

Suggested Citation

  • Lee, Kevin C & Pesaran, M Hashem, 1993. "The Role of Sectoral Interactions in Wage Determination in the UK Economy," Economic Journal, Royal Economic Society, vol. 103(416), pages 21-55, January.
  • Handle: RePEc:ecj:econjl:v:103:y:1993:i:416:p:21-55
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    Cited by:

    1. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
    2. Latreille, Paul L & Manning, Neil, 2000. " Inter-industry and Inter-occupational Wage Spillovers in UK Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 83-99, February.
    3. Cheng Hsiao & M. Hashem Pesaran, 2004. "Random Coefficient Panel Data Models," CESifo Working Paper Series 1233, CESifo Group Munich.
    4. Annette, S. Zeilstra & Linda, A Toolsema, 2005. "Centralised wage bargaining and regional unemployment," ERSA conference papers ersa05p720, European Regional Science Association.
    5. John S. Earle & Klara Sabirianova Peter, 2004. "Contract Violations, Neighborhood Effects, And Wage Arrears In Russia," William Davidson Institute Working Papers Series 2004-708, William Davidson Institute at the University of Michigan.
    6. Pesaran, H.M., 2003. "Estimation and Inference in Large Heterogeneous Panels with Cross Section Dependence," Cambridge Working Papers in Economics 0305, Faculty of Economics, University of Cambridge.
    7. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    8. Heinz Welsch, 1996. "Recycling of carbon/energy taxes and the labor market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(2), pages 141-155, September.
    9. John S. Earle & Klara Sabirianova Peter, 2006. "Complementarity and Custom in Contract Violation," Upjohn Working Papers and Journal Articles 06-129, W.E. Upjohn Institute for Employment Research.
    10. George Kapetanios & M. Hashem Pesaran, 2005. "Alternative Approaches to Estimation and Inference in Large Multifactor Panels: Small Sample Results with an Application to Modelling of Asset Returns," Working Papers 536, Queen Mary University of London, School of Economics and Finance.
    11. repec:hal:journl:peer-00768190 is not listed on IDEAS
    12. Jan Morten Dyrstad, 2015. "Resource curse avoidance: Governmental intervention and wage formation in the Norwegian petroleum sector," Working Paper Series 16715, Department of Economics, Norwegian University of Science and Technology.
    13. Earle, John S. & Peter, Klara Sabirianova, 2000. "Equilibrium Wage Arrears: A Theoretical and Empirical Analysis of Institutional Lock-In," IZA Discussion Papers 196, Institute for the Study of Labor (IZA).
    14. John S. Earle & Klara Z. Sabirianova, 2000. "Equilibrium Wage Arrears: Institutional Lock-In of Contractual Failure in Russia," William Davidson Institute Working Papers Series 321, William Davidson Institute at the University of Michigan.

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