The Effect of Skill shortages on Unemployment and Real Wage Growth: A Simultaneous Equation Approach

Gavin Wallis

No 217, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: This paper attempts to quantify the effect of skill shortages on the UK labour market by developing a simultaneous equation model of unemployment and real wage growth. The model is developed following a structural approach based on a priori economic information and is initially estimated using a two-stage least squares procedure. The model is also estimated using Zellner's seemingly unrelated regressions estimation technique, with similar results. It is shown that skill shortages have a positive effect on real wage growth and a negative effect on unemployment, with both these effects economically and statistically significant.

Keywords: skill shortages; unemployment; wages; 2SLS (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 E24 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-lab
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