Conflict, Effort and Capital Stock in UK Wage Determination

The paper is concerned with the determination of wages, unemployment and labour productivity in the UK. The theoretical model suggests that in addition to economic factors, historical and ideological elements play an important role in the determination of wages, unemployment and productivity. Particular emphasis is put on the capital shortage hypothesis. It is argued that capital scrapping in response to the two oil price shocks, combined with subsequent sluggish growth in capital, may be responsible for the rise of the NAIRU and the persistence of unemployment. The empirical analysis is concerned with testing the theoretical model, using quarterly data for the UK from 1966 until 1994. We use cointegration analysis for the determination of wages, unemployment and labour productivity. This revised version was published online in July 2006 with corrections to the Cover Date.