Estimating a Wage Curve for Britain 1973-1990

Abstract

Following Phillip's original work on the UK, applied researchon 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.

JEL Classification: J0, J3