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What Can Wages and Employment Tell Us about the UK's Productivity Puzzle?

  • Richard Blundell
  • Claire Crawford
  • Wenchao Jin

This paper uses individual data on employment and wages to shed light on the UK’s productivity puzzle. It finds that workforce composition cannot explain the reduction in wages and hence productivity that we observe; instead, real wages have fallen significantly within jobs. Why? One possibility we investigate is higher labour supply in this recession than in the past. Another is lower trade union membership. Alternatively, it might be driven by a fall in productivity as a result of a lower capital-labour ratio. We cannot tell whether productivity is driving wages or vice versa, but understanding why wages have fallen within jobs is at the heart of the UK's productivity puzzle.

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File URL: http://hdl.handle.net/10.1111/ecoj.2014.124.issue-576
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): (2014)
Issue (Month): 576 (05)
Pages: 377-407

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Handle: RePEc:wly:econjl:v::y:2014:i:576:p:377-407
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  1. Blundell, Richard & Brewer, Mike & Francesconi, Marco, 2007. "Job Changes and Hours Changes: Understanding the Path of Labour Supply Adjustment," IZA Discussion Papers 3044, Institute for the Study of Labor (IZA).
  2. Paul Gregg & Stephen Machin & Mariña Fernández‐Salgado, 2014. "Real Wages and Unemployment in the Big Squeeze," Economic Journal, Royal Economic Society, vol. 0(576), pages 408-432, 05.
  3. Claire Crawford & Wenchao Jin & Helen Simpson, 2013. "Productivity, Investment and Profits during the Great Recession: Evidence from UK Firms and Workers," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 153-177, 06.
  4. Christian Dustmann & Tommaso Frattini & Ian P. Preston, 2013. "The Effect of Immigration along the Distribution of Wages," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 145-173.
  5. Peter Dolton & Chiara Rosazza Bondibene & Jonathan Wadsworth, 2012. "Employment, Inequality and the UK National Minimum Wage over the Medium‐Term," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(1), pages 78-106, 02.
  6. Jonathan Cribb & Carl Emmerson & Gemma Tetlow, 2013. "Incentives, shocks or signals: labour supply effects of increasing the female state pension age in the UK," IFS Working Papers W13/03, Institute for Fiscal Studies.
  7. Elizabeth Cascio, 2006. "Public Preschool and Maternal Labor Supply: Evidence from the Introduction of Kindergartens into American Public Schools," NBER Working Papers 12179, National Bureau of Economic Research, Inc.
  8. Maria Donovan Fitzpatrick, 2012. "Revising Our Thinking About the Relationship Between Maternal Labor Supply and Preschool," Journal of Human Resources, University of Wisconsin Press, vol. 47(3), pages 583-612.
  9. Marco Manacorda & Alan Manning & Jonathan Wadsworth, 2012. "The Impact Of Immigration On The Structure Of Wages: Theory And Evidence From Britain," Journal of the European Economic Association, European Economic Association, vol. 10(1), pages 120-151, 02.
  10. Benito, Andrew & Neiss, Katharine & Price, Simon & Rachel, Lukasz, 2010. "The impact of the financial crisis on supply," Bank of England Quarterly Bulletin, Bank of England, vol. 50(2), pages 104-114.
  11. Hughes, Abigail & Saleheen, Jumana, 2012. "UK labour productivity since the onset of the crisis — an international and historical perspective," Bank of England Quarterly Bulletin, Bank of England, vol. 52(2), pages 138-146.
  12. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
  13. Peter Goodridge & Jonathan Haskel & Gavin Wallis, 2013. "Can Intangible Investment Explain the UK Productivity Puzzle?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages R48-R58, May.
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