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Estimating a Wage Curve for Britain 1973-1990

  • David G. Blanchflower
  • Andrew J. Oswald

Following Phillip's original work on the UK, applied research on unemployment and wages has been dominated by the analysis of highly aggregated time-series data sets. However, it has proved difficult with such methods to uncover statistically reliable models. This paper adopts a different approach. It uses microeconomic data on 175,000 British workers from 1973-1990 to provide evidence for the existence of a negatively sloped relationship linking the level of pay to the local rate of unemployment. This 'wage curve' is found to have an elasticity of approximately -0.1. Contrary to the Phillips Curve, no autoregression is found in wages. The paper casts doubt on standard ideas in macroeconomics, regional economics and labour economics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4770.

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Date of creation: Jun 1994
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Publication status: published as Economic Journal, September 1994, Vol. 104, No. 426, pp. 1025-1043.
Handle: RePEc:nbr:nberwo:4770
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  1. David G. Blanchflower & Andrew J. Oswald & Mario D. Garrett, 1989. "Insider Power in Wage Determination," NBER Working Papers 3179, National Bureau of Economic Research, Inc.
  2. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 215-35.
    • David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, March.
  3. Blackaby, D H & Manning, D N, 1987. "Regional Earnings Revisited," The Manchester School of Economic & Social Studies, University of Manchester, vol. 55(2), pages 158-83, June.
  4. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  5. Edmund S. Phelps, 1992. "Consumer Demand and Equilibrium Unemployment in a Working Model of the Customer-Market Incentive-Wage Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 1003-1032.
  6. Richard Jackman & Richard Layard & S Savouri, 1990. "Mismatch: A Framework for Thought," CEP Discussion Papers dp0001, Centre for Economic Performance, LSE.
  7. Lindbeck, Assar, 1992. "Macroeconomic theory and the labor market," European Economic Review, Elsevier, vol. 36(2-3), pages 209-235, April.
  8. Richard B. Freeman, 1990. "Employment and Earnings of Disadvantaged Young Men in a Labor Shortage Economy," NBER Working Papers 3444, National Bureau of Economic Research, Inc.
  9. Moulton, Brent R, 1987. "Diagnostics for Group Effects in Regression Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 275-82, April.
  10. L Christofides & A Oswald, 1991. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," CEP Discussion Papers dp0042, Centre for Economic Performance, LSE.
  11. Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, vol. 35(5), pages 1009-1034, July.
  12. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  13. David G. Blanchflower, 1990. "Fear, Unemployment and Pay Flexibility," NBER Working Papers 3365, National Bureau of Economic Research, Inc.
  14. David G. Blanchflower & Lisa M. Lynch, 1994. "Training at Work: A Comparison of U.S. and British Youths," NBER Chapters, in: Training and the Private Sector: International Comparisons, pages 233-260 National Bureau of Economic Research, Inc.
  15. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  16. Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-28, February.
  17. Edin, P.A. & Holmlund, B. & Ostros, T., 1992. "Wage Behavior and Labor Market Programs in Sweden: Evidence from Micro Data," Papers 1993-1, Uppsala - Working Paper Series.
  18. David G. Blanchflower & Andrew J. Oswald, 1992. "International Wage Curves," NBER Working Papers 4200, National Bureau of Economic Research, Inc.
    • David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters, in: Differences and Changes in Wage Structures, pages 145-174 National Bureau of Economic Research, Inc.
  19. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
  20. Phelps, Edmund S, 1990. " Effects of Productivity, Total Domestic-Product Demand and "Incentive Wages" on Unemployment in a Non-monetary Customer-Market Model of the Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 353-67.
  21. 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.
  22. Woodford, Michael, 1992. "Seven schools of macroeconomic thought by E.S. Phelps : A book review," Journal of Economic Dynamics and Control, Elsevier, vol. 16(2), pages 391-398, April.
  23. Greenhalgh, Christine A, 1980. "Male-Female Wage Differentials in Great Britain: Is Marriage an Equal Opportunity?," Economic Journal, Royal Economic Society, vol. 90(363), pages 751-75, December.
  24. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  25. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S111-43, June.
  26. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  27. Blackaby, D H & Manning, D N, 1990. "The North-South Divide: Questions of Existence and Stability?," Economic Journal, Royal Economic Society, vol. 100(401), pages 510-27, June.
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