Cyclical changes in the wage structure of the United Kingdom: a historical review of the GHS 1972-2002

Peng, Fei and Kang, Lili (2013): Cyclical changes in the wage structure of the United Kingdom: a historical review of the GHS 1972-2002.

Abstract

This paper aims to investigate the cyclical changes in the wage structure of the United Kingdom over the period 1972-2002 using the General Household Survey (GHS). Wage structure of the UK shows a cyclical pattern, which may be from the different wage cyclicality of the top, middle and bottom percentile groups. Higher educated male workers have experienced a faster growth of the education premiums so that the wages of males have become more dispersed after the 1970s. However, female workers with only primary education have faster wage growth than higher educated ones. Moreover, the experience premiums of females have grown faster than males and become similar to males in recent years. Changes in the skill endowments and market valuation can account for the cyclical changes in female earnings structure over the entire period. The residual earnings inequality accounts for more than half changes in overall earnings inequality of males, which cannot be explained by changes in skill endowments and market returns. The evolution of the wage structure, including changes in gender gap, overall wage inequality, skill premiums as well as residual wage inequality are affected by business cycle.

• Item Type: MPRA Paper
• Language: English
• Keywords: wage inequality, skill premiums, business cycle
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

References

BARLEVY, G. & TSIDDON, D. 2006. Earnings inequality and the business cycle. European Economic Review, 50, 55-89.

BELL, B. D. & HART, R. A. 2003a. Wages, Hours, and Overtime Premia: Evidence from the British Labor Market. Industrial and Labor Relations Review, 56, 470-480.

BELL, B. D. & HART, R. A. 2003b. How Important Is Guaranteed or Institutionalised Overtime. IZA Discussion Paper No. 766. Bonn: Institute for the Study of Labor.

BELL, D. N. F., HART, R. A., H BLER, O. & SCHWERDT, W. 2000. Paid and Unpaid Overtime Working in Germany and the UK. IZA Discussion Paper No. 133. Bonn: Institute for the Study of Labor.

BERTHOUD, R. 2007. Work-rich and Work-poor: Three decades of change. Produced by The Policy Press for Joseph Rowntree Foundation (ISBN 978 1 86134 954 5).

BILS, M. 1987. The cyclical behavior of marginal cost and price American Economic Review, 77, 838-855.

BLANCHFLOWER, D. G. & BRYSON, A. 2010. The Wage Impact of Trade Unions in the UK Public and Private Sectors. Economica, 77, 92-109.

BLAU, F. D. & KAHN, L. M. 1996. International Differences in Male Wage Inequality: Institutions versus Market Forces. Journal of Political Economy, 104, 791-837.

BREWER, M., SIBIETA, L. & WREN-LEWIS, L. 2008. Racing away? Income inequality and the evolution of high incomes. IFS Briefing Notes, BN76.

CARD, D. & LEMIEUX, T. 2001. Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis. The Quarterly Journal of Economics, May.

DAVERI, F. & MALIRANTA, M. 2007. Age, seniority and labour costs: lessons from the Finnish IT revolution. Economic Policy, January, 117-175.

DEVEREUX, P. J. & HART, R. A. 2006. Real Wage Cyclicality of Job Stayers, Within-Company Job Movers, and Between-Company Job Movers. Industrial and Labor Relations Review, 60, 105-119.

DEVEREUX, P. J. & HART, R. A. 2007. The Spot Market Matters: Evidence on Implicit Contracts from Britain. Scottish Journal of Political Economy, Special Issue on Labour Contracts and Wages over the Cycle, 54, 661-683.

DICKENS, R. 2000. The Evolution of Individual Male Earnings in Great Britain: 1975-95. The Economic Journal, 110 (January), 27-49.

GOLDFARB, B. D., KIRSCH, D. & MILLER, D. A. 2007. Was There Too Little Entry During the Dot Com Era? Journal of Financial Economics, 86, 100-144.

GOSLING, A. & LEMIEUX, T. 2001. Labour market reforms and changes in wage inequality in the United Kingdom and the United States NBER Working Paper 8413, National Bureau of Economic Research, Inc.

GOSLING, A., MACHIN, S. & MEGHIR, C. 2000. The Changing Distribution of Male Wages in the UK. Review of Economic Studies, 67, 635-666.

HARMON, C., OOSTERBEEK, H. & WALKER, I. 2003a. The Returns to Education: Microeconomics. Journal of Economic Surveys, 17, 115-156.

HARMON, C. P., HOGAN, V. & WALKER, I. 2003b. Dispersion in the Economic Return to Schooling. Labour Economics, 10, 205–214.

KALWIJ, A. S. & ALESSIE, R. 2007. Permanent and Transitory Wage Inequality of British Men, 1975-2001: Year, Age and Cohort Effects. Journal of Applied Econometrics, 22, 1063 - 1093.

KATZ, L. F., LOVEMAN, G. W. & BLANCHFLOWER, D. G. 1995. A comparison of changes in the structure of wage in four countries. In Freeman, R.B. and Katz, L.F. (Eds.) Differences and Changes in Wage Structure, Chicago: University of Chicago Press, 25-67.

KATZ, L. F. & MURPHY, K. M. 1992. Changes in Relative Wages, 1963-1987: Supply and Demand Factors. The Quarterly Journal of Economics, 107, 35-78.

MACDONALD, G. M. 1988. The Economics of Rising Stars. American Economic Review, 78, 155–167.

NICKELL, S. & BELL, B. D. 1996. Changes in the Distribution of Wage and Unemployment in OECD Countries. The American Economic Review, 86, 302-308.

O'MAHONY, M., ROBINSON, C. & VECCHI, M. 2008. The impact of ICT on the demand for skilled labour: A cross-country comparison. Labour Economics, 15, 1435-1450.

ONS 2004. General Household Survey, 2002-2003 [computer file]. Office for National Statistics. Social Survey Division, Colchester, Essex: UK. Data Archive [distributor], July, SN: 4981. Available at: http://www.esds.ac.uk/government/ghs

ONS 2006. Summary of main topics included in GHS questionnaires: 1971 to 2006. Office for National Statistics.

ONS 2007a. The GHS Summary Quality Report. Office for National Statistics, http://www.statistics.gov.uk/about/data/methodology/quality/downloads/SQRGHSv1pdf.pdf.

ONS 2007b. Labour Market Statistics: unemployment rates by sex and age. Office for National Statistics. http://www.statistics.gov.uk/statbase/TSDdownload2.asp

PENG, F. & SIEBERT, W. S. 2012. Real Wage Cyclicality in Germany and the UK: New Results Using Panel Data. Discussion Paper 2688, Institute for the Study of Labor (IZA), Bonn.

PRASAD, E. S. 2002. Wage inequality in the United Kingdom, 1975-99. IMF Staff Papers, 49, 339-362.

ROSEN, S. 1981. The Economics of Superstars. American Economic Review, LXXI, 845–858.

SCHMITT, J. 1991. Changing returns to education and experience for British males, 1974-88. CEP Working Paper No. 122. Centre for Economic Performance, London School of Economics.

SCHMITT, J. 1995. The changing Structure of Male Earnings in Britain, 1974-1988. In Freeman, R.B. and Katz, L.F. (Eds). Differences and Changes in Wage Structure, Chicago: University of Chicago Press, 177-205.

SHIN, D. & SOLON, G. 2007. New Evidence on Real Wage Cyclicality Within Employer-Employee Matches. Scottish Journal of Political Economy, 54, 648-660.

SOLON, G., BARSKY, R. & PARKER, J. A. 1994. Measuring the Cyclicality of Real Wages: How Important Is Composition Bias? Quarterly Journal of Economics, 109, 1-26.

WALKER, I. & ZHU, Y. 2003. Education, Earnings and Productivity: Recent UK Evidence. Labour Market Trends, 111, 145-152.

WALKER, I. & ZHU, Y. 2005. The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK. IZA Discussion Paper No. 1627. Bonn: Institute for the Study of Labor.