Unemployment and the UK labour market before, during and after the Golden Age

Abstract

During the 'golden age' of the 1950s and 1960s unemployment in Britain averaged 2 per cent. This was far lower than ever before or since and a number of hypotheses have been put forward to account for this unique period in labour market history. But there has been little attempt to isolate precisely how the determinants of wage setting and unemployment differed before, during and after the golden age. We estimate a two-equation model over the whole period from 1872 to 1999 using a newly constructed set of long-run labour market data. We find that the structure of real wage setting was different in the golden age, consistent with notions about the postwar consensus, but it did not result in wages that were significantly lower relative to productivity than during other eras. Rapid growth in productivity and world trade together with low interest rates did keep unemployment lower during the golden age than after the 1970s. But the key difference between the golden age and the periods before and after was shifts in labour demand that are not accounted for by any of the variables that are usually thought to determine the equilibrium unemployment rate. During the 'golden age' of the 1950s and 1960s unemployment in Britain averaged 2 per cent. This was far lower than ever before or since and a number of hypotheses have been put forward to account for this unique period in labour market history. But there has been little attempt to isolate precisely how the determinants of wage setting and unemployment differed before, during and after the golden age. We estimate a two-equation model over the whole period from 1872 to 1999 using a newly constructed set of long-run labour market data. We find that the structure of real wage setting was different in the golden age, consistent with notions about the postwar consensus, but it did not result in wages that were significantly lower relative to productivity than during other eras. Rapid growth in productivity and world trade together with low interest rates did keep unemployment lower during the golden age than after the 1970s. But the key difference between the golden age and the periods before and after was shifts in labour demand that are not accounted for by any of the variables that are usually thought to determine the equilibrium unemployment rate.

Commodity Price Shocks and the Australian Economy since Federation

“…where w i are value added weights, g i and g are one year growth rates of individual industrial sectors and aggregate respectively both in terms of employment and GDP (Hatton 2007;Hatton and Boyer 2005). These two indices range between zero (when all sectors grow at the same rate as the aggregate and hence there is no structural change) and one.…”

Australian Unemployment in the Long Run, 1903-2007*

“…Ball and Mankiw (2002) find that productivity growth influences the NAIRU in the USA; they use a standard Phillips Curve framework where 'wage aspirations' adapt slowly to productivity growth. For the UK since 1871, Boyer andHatton (2005) andHatton (2007) find a negative effect of productivity growth on unemployment in a model similar to that used here Slacalek (2004). provides multicountry evidence in support of an inverse relationship between productivity growth and the NAIRU.…”

Wages, Income Distribution and Economic Growth: Long-Run Perspectives in Scandinavia, 1900–2010

“…We apply the models discussed above to data for Denmark, 1900-2010, Norway, 1910-2010, and Sweden, 1900-2010 The data thus covers the interwar and postwar periods discussed in Section Two, as well as the post-1980 period with a quite different wage formation pattern (Hatton and Boyer 2005;Bengtsson 2015). The long-run datasets that we use build on recent historical national accounts research, not least that conducted under the auspices of central banks.…”