Estimating a Wage Curve for Britain 1973-1990

Abstract

Estimating a Wage Curve for Britain 1973Britain -1990 Although the question 'How does unemployment affect paydetermination'?' is one of the most intensively debated issues in economics, there continues to be relatively little agreement about the answer.Following Phillips's (1958) work, research in this field has been dominated by time-series analysis of highly aggregated data sets.However, it has proved difficult with such methods to uncover statistically reliable models.While macroeconomics textbooks contineto use the Phillips Curve as a centrepiece, the quality of the supporting empirical evidence is not high.The object of this paper is to use microeconomic data on a sample of approximately 175,000 British workers from the 1970s to the 1990s to provide evidence for the existence of a negatively sloped curve linking the kd of pay to the rate of local unemployment1.This spatial relationship, christened a 'wage curve' by Blanchflower and Oswald (1990), differs from Phillips's relationship.It also differs from the conventional wisdom and large literature stemming from Harris and Todaro (1970) and Hall (1970).That literature asserts that, by a compensating-differentials argument, wages and unemployment must be positively correlated across regions.Later results touch upon the three fields of macroeconomics, regional economics and labour economics.Although the paper is primarily concerned to document a statistical relationship, the Appendix sets out a theoretical model, as an illustration and one possible interpretation of the data, in which a negative association between wages and unemployment emerges.It is a multi-regional framework extending research that derives theoretical wage-setting curves in aggregate models.This work includes Akerlof and

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