The UK Wage Curve: New Evidence from the British Household Panel Survey

This paper investigates the UK wage curve using longitudinal micro data drawn from the first eight waves of the British Household Panel Survey (BHPS). We estimate a fixed-effects model that controls for observed and unobserved individual-specific heterogeneity. Our results suggest that there is evidence of a negative relationship in wage-unemployment space. The estimated unemployment elasticity of pay for UK males is approximately ?0.14 and this elasticity is robust to a number of alternative specifications. There is no evidence of a significant wage curve for women. These findings are consistent with panel studies reported for other countries. They contrast with previous studies for the UK, however, in that they reject the inclusion of higher order polynomial terms for unemployment. The main findings of the paper, therefore, are that the wage-unemployment relationship is robust but not as non-linear as has been previously thought.