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What can wages and employment tell us about the UK's productivity puzzle?

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Listed:
  • Richard Blundell

    () (Institute for Fiscal Studies and IFS and UCL)

  • Claire Crawford

    () (Institute for Fiscal Studies)

  • Wenchao (Michelle) Jin

    () (Institute for Fiscal Studies and Institute for Fiscal Studies)

Abstract

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.

Suggested Citation

  • Richard Blundell & Claire Crawford & Wenchao (Michelle) Jin, 2013. "What can wages and employment tell us about the UK's productivity puzzle?," IFS Working Papers W13/11, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:13/11
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    References listed on IDEAS

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    1. 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, February.
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    Cited by:

    1. Richard Blundell, 2016. "Coase Lecture—Human Capital, Inequality and Tax Reform: Recent Past and Future Prospects," Economica, London School of Economics and Political Science, vol. 83(330), pages 201-218, April.
    2. Michael W. Elsby & Donggyun Shin & Gary Solon, 2013. "Wage Adjustment in the Great Recession," NBER Working Papers 19478, National Bureau of Economic Research, Inc.
    3. Aedín Doris & Donal O’Neill & Olive Sweetman, 2015. "Wage flexibility and the great recession: the response of the Irish labour market," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    4. Patterson, Christina & Şahin, Ayşegül & Topa, Giorgio & Violante, Giovanni L., 2016. "Working hard in the wrong place: A mismatch-based explanation to the UK productivity puzzle," European Economic Review, Elsevier, vol. 84(C), pages 42-56.
    5. Daniel Schaefer & Carl Singleton, 2017. "Recent Changes in British Wage Inequality: Evidence from Firms and Occupations," 2017 Meeting Papers 459, Society for Economic Dynamics.
    6. Michael W. L. Elsby & Donggyun Shin & Gary Solon, 2016. "Wage Adjustment in the Great Recession and Other Downturns: Evidence from the United States and Great Britain," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 249-291.
    7. Boris Hirsch & Thomas Zwick, 2015. "How Selective Are Real Wage Cuts? A Micro-analysis Using Linked Employer–Employee Data," LABOUR, CEIS, vol. 29(4), pages 327-347, December.
    8. James Banks & Richard Blundell & Carl Emmerson, 2015. "Disability Benefit Receipt and Reform: Reconciling Trends in the United Kingdom," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 173-190, Spring.
    9. Judith M. Delaney & Paul J. Devereux, 2017. "More Education, Less Volatility? The Effect of Education on Earnings Volatility over the Life Cycle," Working Papers 201723, School of Economics, University College Dublin.
    10. Daniel Schaefer & Carl Singleton, 2017. "Real Wages and Hours in the Great Recession: Evidence from Firms and their Entry-Level Jobs," CESifo Working Paper Series 6766, CESifo Group Munich.
    11. Verdugo, Gregory, 2016. "Real wage cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data," European Economic Review, Elsevier, vol. 82(C), pages 46-69.
    12. Silvia Avram & Mike Brewer & Andrea Salvatori, 2016. "Can’t work or won’t work: quasi-experimental evidence on work search requirements for single parents," IFS Working Papers W16/11, Institute for Fiscal Studies.
    13. Clymo, AJ, 2017. "Heterogeneous Firms, Wages, and the Effects of Financial Crises," Economics Discussion Papers 20572, University of Essex, Department of Economics.
    14. René Cabral & André Varella Mollick & Eduardo Saucedo, 2016. "Violence in Mexico and its effects on labor productivity," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(2), pages 317-339, March.
    15. Richard Disney & John Gathergood, 2013. "House Prices, Wealth Effects and Labour Supply," Discussion Papers 13/02, University of Nottingham, School of Economics.
    16. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2014. "A theory of wage adjustment under loss aversion," Kiel Working Papers 1977, Kiel Institute for the World Economy (IfW).
    17. Harris, Richard & Moffat, John, 2016. "Plant closure in Britain since the Great Recession," Economics Letters, Elsevier, vol. 140(C), pages 27-30.
    18. Daniel Borowczyk-Martins & Etienne Lalé, 2017. "Employment Adjustment and Part-time Work: Lessons from the United States and the United Kingdom," CIRANO Working Papers 2017s-27, CIRANO.
    19. Daniel Schaefer & Carl Singleton, 2017. "Recent Changes in British Wage Inequality: Evidence from Firms and Occupations," 2017 Meeting Papers 459, Society for Economic Dynamics.
    20. Lai, Yanqing & Saridakis, George & Blackburn, Robert & Johnstone, Stewart, 2016. "Are the HR responses of small firms different from large firms in times of recession?," Journal of Business Venturing, Elsevier, vol. 31(1), pages 113-131.

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