Understanding the United Kingdom's Wageless Recovery

Benjamin Nelson

International Journal of Central Banking, 2019, vol. 15, issue 5, 307-360

Abstract: The recovery of 2013 that followed the United Kingdom's Great Recession featured a rapid fall in unemployment but stagnant wage growth. Did the wage Phillips curve break down? These dynamics have two main candidate explanations: declining labor frictions, meaning lower unemployment without increasing wage growth; or a demand recovery accompanied by weak productivity, meaning unemployment fell but equilibrium wage growth remained low. This paper investigates using an estimated New Keynesian model featuring unemployment. The data favor a mix of explanations, but with the balance of evidence favoring the second. A demand recovery reduced unemployment, but wages are likely to have remained weak mainly because of poor productivity.

JEL-codes: E23 E32 (search for similar items in EconPapers)
Date: 2019
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