THE ROLE OF SECTORAL INTERACTIONS IN WAGE DETERMINATION IN THE UK ECONOMY

The plan of the paper is as follows: section I briefly describes a disaggregated model of the labour market, and considers explicitly the relationships that exist between sectoral and aggregate wage determination. Section II briefly discusses the appropriate statistical techniques for the estimation of disaggregated rational expectations models, and considers the application of these techniques to the sectoral wage equations. The problem of comparison of aggregate and disaggregate models of wage determination is discussed in Section III. In Section IV, the estimation procedure is applied to the analysis of sectoral wage determination across sixteen sectors of the UK economy over the period 1957-90, and the estimated disaggregated model is compared to its aggregate counterpart. Expected outside wages exert an important influence on real wages in all sectors; pressure on wages which are internal to the sector are found primarily ouside the "service-producing' sectors; unemployment rates and unemployment benefits show up significantly only in a few sectors; there are complicated dynamic adjustments influencing wage formation across the sectors, and the aggregate wage equations considered in the paper are subject to serious aggregation problems. Section V includes the paper. -from Authors