Regional earnings : comparison of earnings in Scotland and the rest of Great Britain, 1970-1982
Recent economic debate has focused upon regional labour markets, with particular reference to unemployment, earnings and apparent rigidity in the labour market. In the regional context, two sources of labour market rigidity have been proposed, firstly through wage rigidity, and secondly through mobility costs and cost-of-living differences generated by the housing market. Using unique data from the New Earnings Survey (NES), the earnings differential between Scotland and the rest of Great Britian is shown to consist of both long-run ('equilibrium') factors and short-run ('disequilibrium') factors. Further spatial disaggregation has highlighted Greater London and the South East of England as particularly distinctive in terms of labour market behaviour and characteristics. Use of the NES database has also enabled analysis of female employees, who have hitherto been overlooked by analysis of regional labour markets. In general female employees, especially non-manual, are shown to have fewer characteristics of competitive regional market behaviour than males. This implies that previous analysis may have under-estimated the rigidity of regional labour markets. Confirming previous studies, evidence from NES data for Scotland (using both time-series and cross-section analysis) only weakly supports evidence of regional wage rigidity, however there is strong evidence supporting the influence of the housing market on regional labour markets. Cost-of-living differences and mobility costs are further fuelled in the U.K. by considerable tax relief incentives in the housing market. The immediate policy prescription is therefore reduction of these incentives and general attention to mobility costs of both employees and employers.