Labour market prospects for Britain and America

What does the recovery have in store for wages and employment?

Stephen Machin

14 November 2013

Two Observations

1). Falling real wages over last ten years, and weak real

wage performance relative to before.

2). Strengthening relationship between real wages and

unemployment, despite unemployment being lower and

not rising as much as usual downturns.

Observation 1

020

40

60

80

Perc

ent R

eal W

age

Gro

wth

1979 1989 1999 2012Year

10th Percentile 50th Percentile

90th Percentile

Growth in Real Weekly Earnings NES/ASHE (RPI)

Unemployment Rates

46

810

12

Perc

ent

1979 1989 1999 2012Quarter

ILO Unemployment Rates

Observation 2

20022001

2000

1999

1991

1998

1990

1997

1989

19961992 19951993 1994

1988

1986

19875.8

55.9

5.9

5

6

6.0

56.1

6.1

5

Med

ian L

og(R

eal W

age)

-3.2 -3 -2.8 -2.6 -2.4 -2.2Log(Unemployment Rate)

Log(W) = -0.062 Log(U) + Time Trend

Real Wages and Unemployment, 1986 to 2002

2006200520042003200920082007

2010

2012

2011

5.8

55.9

5.9

5

6

6.0

56.1

6.1

5

Med

ian L

og(R

eal W

age)

-3.2 -3 -2.8 -2.6 -2.4 -2.2Log(Unemployment Rate)

Log(W) = -0.184 Log(U) + Time Trend

Real Wages and Unemployment, 2003 to 2012