Fear, Unemployment and Pay Flexibility

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Abstract
The paper uses newly available cross-section data to study wage determination in the United Kingdom in the 1980s. The results are contrasted with those from a comparable sample from the US from 1977-1988. 1) Fear of unemployment substantially depresses pay in both countries. 2) There is some evidence of a wage ratchet in the UK whereby rates of pay are more flexible upwards than downwards. 3) The unemployment elasticity of pay averages -0.1 in the UK and apparently zero in the US. 4) Wages are almost twice as flexible in non-union and small workplaces in the UK.
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