Cinzia, Rienzo (2010): Real Wages, Wage Inequality and the Regional Cost-of-living in the UK.
Download (379kB) | Preview
University graduates in the UK are more concentrated in regions where the cost of housing is higher, implying that they face a higher cost-of-living that could possibly reduce the graduate real wage relative to other groups and carry implications for measures of wage dispersion. This paper reassesses how estimates of wage inequality from 1997 to 2008 vary when regional differences in the cost of housing in the UK are taken into consideration. In order to do so, the real wage is deflated by a specially constructed regional Retail Price Index (RPI); this is a new measure of the cost-of-living that partially updates the national RPI with a regional housing index, therefore allowing the RPI to vary by regions. Results show that the national RPI underestimates the cost-of-living of workers living in the most expensive regions (London, South East) and overestimates the cost-of-living for “cheaper” regions (Northern Ireland, Scotland). When deflating hourly wages by the regional RPI, the average level of wages is lower from 8% to 11% an hour for all workers in London and the South East, but is higher (from 2% to 9%) in the remaining regions; similarly the college –high school wage gap decreases form 6 to 13% in levels when deflating wages by the real regional RPI.
|Item Type:||MPRA Paper|
|Original Title:||Real Wages, Wage Inequality and the Regional Cost-of-living in the UK|
|Keywords:||cost-of-living, wages, wage inequality, RPI|
|Subjects:||R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics
C - Mathematical and Quantitative Methods > C0 - General
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs
J - Labor and Demographic Economics > J0 - General > J01 - Labor Economics: General
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity
|Depositing User:||cinzia rienzo|
|Date Deposited:||03. Feb 2012 17:22|
|Last Modified:||23. May 2015 01:16|
Baran, D. and O’ Donoghue, J., 2002,”Price levels in 2000 for London and the regions compared with the national average”, ONS.
Black D., Kelensikova, N., and Taylor, L.J., 2009, “Earnings function when wages and prices vary by location”, Journal of Labour Economics.
Blanchflower, D., and Oswald, A., 2005, “Regional wages and the need of a better area cost adjustment”, Public Money and Management, 25 (2).
Blow, L., and I. Crawford , 2001, “The cost of living with the RPI: Substitution bias in the UK retail prices index”, The Economic Journal, 111 (472, Features) (Jun.): F357-82.
Borooah V. K., Mcgregor P.P.L., MckeeP.M., and Mullhollond, G.E., 1996, “Cost-of-living differences between the regions of the United Kingdom”, in New Inequalities, The changing distribution of income and wealth in the United Kingdom. (Eds.) J. Hills.
Card, D. and Lemieux, T., 2001, “Can falling supply explain the rising return to college for younger men? A cohort-based analysis”, The Quarterly Journal of Economics, 116, (2) (May):705-46.
Card, D. , 2009, “Inequality and Immigration”, The American Economic Review, 99, No. 2.
Checchetti, S., 2007,”Housing in inflation measurement”. VOX
Crawfors, I., 1996, “UK household cost-of-living indices, 1979-92”, in New Inequalities, The changing distribution of income and wealth in the United Kingdom.( Eds.) J. Hills.
Crawford, I., and Smith,Z., 2002, “Distributional aspects of inflation”, Institute of Fiscal Studies, Commentary 90. Diewert, E., 1993, “The early history of Price Index research”, in Essays in Index number theory, Volume 1. W.E. Diewert and A.O. Nakamura, eds. Amsterdam,Elsevier, 33-65.
Diewert, E., 2003, “The treatment of owner occupied housing and other durables in a consumer price index”, Discussion paper No. 03-08, University of British Columbia.
Duranton, G. and Monastiriotis, V.,2002, “Mind the gap: The evolution of regional earnings inequalities in the U.K., 1982-1997”, Journal of Regional Science, 42 (1).
Green, F., and Zhu, F., 2008, “Overqualification, job satisfaction, and increasing returns to graduate education”, Oxford Economic Papers, 1-24.
Hausman, J., 2003, “Sources of bias and solutions to bias in the Consumer Price Index”, The Journal of Economic Perspective, 17 N.1, 23-44.
Hayes, P., 2005, “Estimating UK regional price indices 1974-96”, Regional Studies, 39 (3) (05): 333-44.
Henley, A., 2005, “On regional growth convergence in Great Britain”, Regional Studies, 39 (9) (12): 1245-60.
Holly, S., Pesaran, M.H. and Yagamata,T.,2010,”Spatial and temporal of house prices in the UK”, IZA Discussion Paper DP 4694.
Inman, P., 2010,”Inflation index move is ‘insidious’ benefit cut, say TUC” from The Guardian, 12 October.
Konus, A.A.,1924, “The problem of the true index of the cost of living”, Reprinted in Econometrica,7, 10-29.
Leunig, T., and Overman, H.,2008, “Spatial patterns of development and the British Housing Market”, Oxford Review of Economic Policy, 24 (1): 59-78.
Machin, S.,1998, “Wage Inequality in the 1970s, 1980s and 1990s”, In P.Gregg and J. Wadsworth (eds) The State of Working Britain, Manchester University Press.
Machin, S.,2003, “Wage inequality since 1975”, in R. Dickens, P. Gregg, and J. Wadsworth (eds) The Labour Market under new Labour, Palgrave Macmillan, Basingstoke.
Machin, S., and Von Reenen, J.,2008, “Changes in wage inequality”, New Palgrave Dictionary of Economics.
Manacorda, M., Manning, A. and Wadsworth,J.,2007, “The Impact of Immigration on the Structure of Wages: Theory and Evidence from Britain”, Research in Labour Economics, 26, 125-155.
Moretti, E.,2010, “Real wage inequality”, NBER Working Paper no. 14370.
Muellbauer, J., and Murphy, A.,2008, “Housing markets and the economy: the assessment”, Oxford Review of Economic Policy, 24 (1): 1-33.
Office for National Statistics. ,2007, “Consumer price indices technical manual. 2007. Technical Report”.
Office for National Statistics. 2009, “Family Spending. A report on the 2008 Living costs and Food Survey.” (Eds.) Skentelbery R.
Rienzo, C. and Vargas-Silva, C., 2011,”Migrants in the UK: an overview”, report for the Migration Observatory Briefing , University of Oxford.
Schmitt, J.,1995, “The changing Structure of Male earnings in Britain, 1974-1988”, in R. Freeman and L.Katz (eds.), Changes and Differences in Wage Structures Chicago: University of Chicago Press.
Sloane, P.J., 2003, “Much ado about nothing? What does the overeducation literature really tell us?”, In F. Buchel, A. de Grip, and A. Martens (eds) Overeducation in Europe: current issues in Theory and Policy, Edward Elgar, Cheltenham.
Wadsworth, J.,2010, “Immigration and the UK Labour Market: evidence from economic research”, National Institute Economic Review, 21.
Walker, I. and Zhu, Y.,2008,”The college wage premium and the expansion of higher education in the UK”, Scandinavian Journal of Economics, 110, 695-709.
Wooldridge, J., 2006, Introductory econometrics a modern approach. 3rd Edition, Thomson South Western.