Wage premia in the British labour market

The doctoral dissertation considers the existence of non-competitive wage premia in Great Britain. The research aims to confront the predictions of certain approaches to wage determination with microeconomic data for Great Britain. In so doing, the analysis is mindful of the importance of economic theory in order to provide a basis for empirical work undertaken, which in turn should ideally be focused upon policy-oriented issues. In addressing the issue of Wage Premia in the British Labour Market, the Thesis also acknowledges the importance of employing large microeconomic datasets in order to understand an issue which is essentially concerned with microeconomic behaviour. To this end, the Thesis employs data at the level of the individual, the establishment and the firm in the British labour market, carrying out both cross-sectional and longitudinal analyses. Noncompetitive wages have significant implications for performance alongside wages themselves. Partly as a result, a concern of the author was to go beyond estimation of wage equations with additional explanatory variables, in order to consider these aspects of performance directly. The empirical work reflects this. In a sense, the body of research traces the three stages of development of the empirical literature on non-competitive wages. This begins with a study of the wages received by individual workers according to their industry affiliation. Competitive theory predicts that contingent upon levels of human capital and non-pecuniary benefits, individuals working in different industries should earn equal amounts: a law of one-price prevails. The analysis therefore attempts to detect the presence of non-competitive rents. Further, the notion that such differentials are non-competitive suggests a relation between their magnitude and industry profitability. The study represents the first attempt to relate industry differentials to measures of industry ability-to pay for Great Britain. Second, a cross-sectional study of turnover and wages is concerned with the issue of whether an employer may voluntarily pay wages above a market-clearing level in order to prevent employees from quitting the place of work. The paper provides the first microeconomic evidence of wage as well as union effects upon turnover at British establishments. Third, the issue of whether the forces of wage determination may differ between levels of the firm is considered, focusing upon the employee-executive distinction. Two chapters, employing a large panel of UK companies consider this issue by examining the determination of company-level wages (Chapter 5) and company financial performance (Chapter 6). At the time of writing, one of the most contentious issues in the area of wage determination in the British labour market refers to the pay of public sector employees and how this compares to that of the private sector. In Chapter 7, among the first individual-level estimates of the differential associated with employment in the public sector for Great Britain are provided. Finally, the Thesis draws out the policy implications of efficiency wages. Efficiency Wage theory represents one of the main schools of thought regarding the existence of noncompetitive wage premia. The issues which arise strike at the core of labour market and industrial policy-making and include unemployment and minimum wage legislation.