Local Pay Determination

Theoretical models of local pay are reviewed, ranging from neoclassical perspectives, unemployment/wage trade‐off models, and segmented labour market approaches. The empirical work on U.S. North‐South differentials is discussed. For the U.K., studies of the extent of and trends in geographical pay differentials are considered, as well as behavioural explanations focusing on the role of excess demand. The issue of adjustment processes is then discussed, both in theory and in relation to empirical work for the U.S. and U.K. This discussion focuses largely on geographical spillover effects, in terms of origins, evidence, and issues of identification. Finally, the impact of certain impediments in the adjustment process are considered, specifically in relation to the U.K. These concern the role and influence of national wage bargaining, as well as factors inhibiting labour migration, stemming from the housing market and the climate of the national labour market.