Friday, 19 October 2012

What a drag: The chilling impact of unemployment on real wages

a paper for The Resolution Foundation by Paul Gregg (University of Bath) and Stephen Machin (University College London and Centre for Economic Performance) published in September 2012


Real wage growth in the UK labour market, since around 2003, has slowed down and stagnated.

In this paper, we document the nature of real wage changes across the wage distribution over the last three decades, showing that the recent period of stagnant real wage growth represents a distinct break of trend that pre-dates the onset of recession.

We explore whether unemployment has become a stronger moderating influence on real wage growth since the trend break and document, using aggregate economy-wide data and regional panel data, that real wage-unemployment sensitivities have become stronger in the period from 2003 onwards.

Full text  (PDF 35pp)

JEL Classifications: J31, J64

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