Earnings, Unemployment, and Housing: Evidence from a Panel of British Regions

British regions display persistent differences in both earnings and unemployment rates. A number of studies have found that in general, regions that have high unemployment tend to have low wages. This runs contrary to a compensating differentials argument that high wages should compensate for high unemployment. However, levels of labour mobility in Britain, and especially levels of labour migration, are surprisingly low. The housing market therefore has an important impact on regional convergence. This paper discusses the determination of regional earnings and unemployment in the ten regions of Great Britain between 1972 and 1995, paying particular attention to their joint determination and to the influence of the housing market. We conclude that there is no wage-curve for non-manual men nor for full-time women, and that the wage-curve appears to be positively sloped for part-time women. However, for manual men, we find a significant elasticity of around –0.07, contrasting with Blanchflower and Oswald’s –0.1. For full-time men and women, we find highly significant but somewhat smaller long-run housing market effects than Blackaby and Manning (1992), but with particularly strong effects for nonmanual men compared with manual men. For unemployment, we confirm the important positive effect of lagged earnings on unemployment.