The Market for Labour in Interwar Britain

Using annual data we estimate an econometric model of the interwar labour market in Britain. The model determines aggregate employment, unemployment, the working population and wage rates. The latter are determined via an augmented Phillips Curve, in which the 'natural' rate of unemployment is hypothesised to be influenced, inter alia, by the real level of unemployment benefit. Various counterfactual simulations are conducted to explore the effects of social security policy, monetary policy and the state of the world economy on domestic labour market developments. We find that much, though not all, of the rise in interwar unemployment was an equilibrium phenomenon.