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Models of the UK Economy and the Real Wage-Employment Debate

Published online by Cambridge University Press:  26 March 2020

M.J. Andrews ,
D.N.F. Bell ,
P.G. Fisher ,
K.F. Wallis  and
J.D. Whitley
J.D. Whitley
Affiliation:
The ESRC Macroeconomic Modelling Bureau
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Abstract

This article is an example of the type of exercise that is made possible by the existence of the set of UK models at Warwick. Using three quarterly models, those of the London Business School (LBS), the National Institute of Economic and Social Research (NIESR) and Her Majesty's Treasury (HMT), and two annual models, those of the City University Business School (CUBS) and the Liverpool University Research Group in Macroeconomics (LPL), it considers the use, and possible abuse, of such models of the UK economy to illustrate the real wage—employment debate.

In UK models real wages and employment are determined jointly and the article shows that the sign of the association between these two variables depends ore the nature of the shock which causes real wages to change. A common method of analysis is to perturb the endogenous real wage directly and although the results are quantitatively similar to those where the change to real wages results from a supply-side shock to the labour market, it is argued that such exercises are typically without foundation since no mechanism for achieving a direct reduction in real wages is put forward. Any implicit model which underpins the assumption of an exogenous shift in an endogenous variable needs to be stated clearly in order for the plausibility of the ‘intervention’ and resulting policy analysis to be assessed.

Type
Articles
Information
National Institute Economic Review , Volume 112 , May 1985 , pp. 41 - 52
Copyright
Copyright © 1985 National Institute of Economic and Social Research

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Footnotes

The Bureau was established at the University of Warwick in September 1983. The main purpose of the Bureau is to improve the accessibility of largescale macroeconomic models, to promote general understanding of the properties of the models of the UK economy, and to allow comparison between models to be made more easily. To this end, models of the main ESRC-supported modelling teams and of HM Treasury have been mounted at the University of Warwick Computer Unit, together with associated databases, and these can be accessed by academic users eligible for ESRC awards without charge. Access to the models is typically via the academic computer network (JANET). The financial support of the Economic and Social Research Council is gratefully acknowledged but the responsibility for the contents, opinions and conclusions expressed in this article rests with the authors.

References

(1) HM Treasury (1985), ‘The relationship between wages and employment’.

(1) R. Layard and S. Nickell, ‘The causes of British unemployment’ in National Institute Economic Review, no. 111, February 1985.

(2) K. F. Wallis (ed.), M. J. Andrews, D. N. F. Bell, P. G. Fisher and J. D. Whitley, Models of the UK Economy: A Review by the ESRC Macroeconomic Modelling Bureau, Oxford University Press, 1984.

(1) See, Models of the Economy, op. cit., pp. 143-4.

(1) The General Theory of Employment, Interest and Money, Chapter 19.