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CEP discussion paper

Wage Determination: An Assessment of Returns to Education, Occupation, Region and Industry in Great Britain

Between 1978 and 1985 wages of male employees rose by nearly 30 percent. The main purpose of this paper is to contribute to the understanding of the determinants of individual wages in an attempt to account for this rise in real wages. We estimate a time series of cross-section wage equations for male employees in Great Britain using individual level data from the Family Expenditure Surveys for the period 1978 to 1985. Before demonstrating how a time series of cross-sections can be fruitfully used in accounting for growth in real wages, we pay special attention to returns to education. In particular, those in our sample hav been affected by several changes to the statutory minimum school leaving age. We test whether it is the absolute or the relative level of education in comparison to the minimum school leaving age that matters with regard to wage determination. To account for the change in real wages, we decompose the rise in gross average hourly earnings into two components: an element due to changes in the coefficients and another representing the effects of change in the variables themselves. We find that although variables demographic shifts., represented by changes in the variables, account for a notable proportion of the change in the real wage, the major influence is associated with changes in the coefficients.

R Moghadam

August 1990     Paper Number CEPDP0008