Fear, Unemployment and Pay Flexibility
NBER Working Paper No. 3365 (Also Reprint No. r1631)
The paper uses newly available cross-section data to study wage determination in the United Kingdom in the 1980s. The results are contrasted with those from a comparable sample from the US from 1977-1988.
1) Fear of unemployment substantially depresses pay in both countries.
2) There is some evidence of a wage ratchet in the UK whereby rates of pay are more flexible upwards than downwards.
3) The unemployment elasticity of pay averages -0.1 in the UK and apparently zero in the US.
4) Wages are almost twice as flexible in non-union and small workplaces in the UK.
Published: The Economic Journal, Vol. 101, No. 406, pp.483-496, (May 1991).