Regional Earnings and Unemployment ‐ a Simultaneous Approach

This paper presents an econometric analysis of the interaction between regional unemployment and regional earnings in Britain. A two-equation error-correction model of regional earnings and unemployment determination is estimated on data for 1972 to 1988 inclusive. The wage equation relates regional earnings to unemployment, long-term unemployment, and indices of living costs both including and excluding housing costs. The unemployment equation relates regional unemployment to earnings and real output. Higher relative unemployment and lower regional living costs both lead to lower regional earnings; however, increases in regional earnings and decreases in regional output lead to increased relative unemployment.