Labor Market Slack in the United Kingdom

28 Pages Posted: 11 Jul 2014

See all articles by David N.F. Bell

David N.F. Bell

University of Stirling - Department of Economics; IZA Institute of Labor Economics

David G. Blanchflower

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Peter G. Peterson Institute for International Economics

Date Written: July 9, 2014

Abstract

This paper examines the amount of slack in the UK labor market. It examines the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment, which in our view are invalid. Without any evidence the MPC in its assessment of the output gap reduces the level of unemployment because of its claim that long-term unemployment has no effect on wages. We produce contrary evidence. The MPC further reduces the level of underemployment in the United Kingdom by half. We present arguments as to why we also think this inappropriate. We set out arguments on why we believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.

Keywords: wages, underemployment, unemployment

JEL Classification: J01, J11, J21, J23, J38, J64

Suggested Citation

Bell, David N.F. and Blanchflower, David G., Labor Market Slack in the United Kingdom (July 9, 2014). Peterson Institute for International Economics Working Paper No. 14-2. Available at SSRN: https://ssrn.com/abstract=2464169 or http://dx.doi.org/10.2139/ssrn.2464169

David N.F. Bell

University of Stirling - Department of Economics ( email )

Stirling, Scotland FK9 4LA
United Kingdom
+44 1786 467 486 (Phone)
+44 1786 467 469 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

David G. Blanchflower (Contact Author)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2536 (Phone)
603-646-2122 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
33
Abstract Views
302
PlumX Metrics