IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

What does economic theory tell us about labour market tightness?

  • Andrew Brigden
  • Jonathan Thomas
Registered author(s):

    Labour market tightness is a phrase often used by commentators and policy-makers, but it is rarely defined. In this paper, the phrase labour market tightness is interpreted as describing the balance between the demand for, and the supply of, labour. A logical consequence of this approach is that tightness is not a helpful concept in those models of the labour market, such as the standard competitive and the basic matching model, where there are insufficient rigidities to create imbalances between labour demand and supply. It is proposed that changes in the labour share of income are a convenient yardstick for measuring changes in labour market tightness. In response to certain kinds of shock, changes in the labour share will give misleading signals, but this is likely to occur less frequently than with other oft-cited tightness indicators such as the unemployment rate or the employment rate. The paper concludes by considering the links between labour market tightness and inflation. A key lesson from this analysis is that any attempt to infer the relationships between labour market tightness, various market indicators of it, and inflation, requires both a clear definition of tightness and depends on the specific model of the labour market.

    If 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.

    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp185.pdf
    Download Restriction: no

    Paper provided by Bank of England in its series Bank of England working papers with number 185.

    as
    in new window

    Length:
    Date of creation: Apr 2003
    Date of revision:
    Handle: RePEc:boe:boeewp:185
    Contact details of provider: Postal:
    Bank of England, Threadneedle Street, London, EC2R 8AH

    Phone: +44 (0)171 601 4030
    Fax: +44 (0)171 601 5196
    Web page: http://www.bankofengland.co.uk/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Marco Manacorda & Barbara Petrongolo, 1996. "Skill Mismatch and Unemployment in OECD Countries," CEP Discussion Papers dp0307, Centre for Economic Performance, LSE.
    3. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
    4. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
    5. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
    6. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, December.
    8. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
    9. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
    10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Staff Report 227, Federal Reserve Bank of Minneapolis.
    11. Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
    12. Richard Jackman & Richard Layard & Marco Manacorda & Barbara Petrongolo, 1997. "European versus US Unemployment: Different Responses to Increased Demand for skill?," CEP Discussion Papers dp0349, Centre for Economic Performance, LSE.
    13. Shamik Dhar & Stephen P Millard, 2000. "How well does a limited participation model of the monetary transmission mechanism match UK data?," Bank of England working papers 118, Bank of England.
    14. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
    15. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
    16. Shamik Dhar & Stephen P Millard, 2000. "A limited participation model of the monetary transmission mechanism in the United Kingdom," Bank of England working papers 117, Bank of England.
    17. Nicoletta Batini & Brian Jackson & Stephen Nickell, 2000. "Inflation Dynamics and the Labour Share in the UK," Discussion Papers 02, Monetary Policy Committee Unit, Bank of England.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:185. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Media Team)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.