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Understanding the United Kingdom's Wageless Recovery

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  • Benjamin D. Nelson

Abstract

The recovery of 2013 that followed the United Kingdom's Great Recession featured a rapid fall in unemployment but stagnant wage growth. Did the wage Phillips curve break down? These dynamics have two main candidate explanations: declining labor frictions, meaning lower unemployment without increasing wage growth; or a demand recovery accompanied by weak productivity, meaning unemployment fell but equilibrium wage growth remained low. This paper investigates using an estimated New Keynesian model featuring unemployment. The data favor a mix of explanations, but with the balance of evidence favoring the second. A demand recovery reduced unemployment, but wages are likely to have remained weak mainly because of poor productivity.

Suggested Citation

  • Benjamin D. Nelson, 2019. "Understanding the United Kingdom's Wageless Recovery," International Journal of Central Banking, International Journal of Central Banking, vol. 15(5), pages 307-360, December.
    • Handle: RePEc:ijc:ijcjou:y:2019:q:5:a:8
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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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