Regional goods and labour markets in the UK : an empirical analysis.

This thesis is an empirical investigation into the behaviour of regional unemployment, wages and prices for the UK economy over the period 1974-1996. It develops a measure for regional retail prices and regional retail price expectations with which to examine regional price behaviour and to develop a further understanding of the labour market adjustment processes that occur at the regional level. Using regional prices and regional price expectations this thesis produces results which demonstrates a greater consistency with the predictions of regional wage determination models than either aggregate real wage modelling or the use of aggregate prices. The analysis of regional labour markets is developed alongside the dramatic change in regional unemployment relativities that occurred in the UK over the early 1990s and finds support for a clear north-south differential in regional real wage-adjustment processes consistent with contemporary models of wage determination. It is argued that the change in regional unemployment differentials was due to a combination of region-specific price expectational errors and the asymmetric impact of the economic shock. The narrowing of regional unemployment differentials occurred because real wage adjustment was slower in the south than in the north. This thesis suggests that regional price expectations can be modelled as a function of the perceived regional economic climate. Due to the incidence of region-specific shocks and regional asymmetries in the response to such economic shocks, it is argued that aggregate modelling of the UK labour market leads to spurious results on estimated labour market relationships unless regional differences are explicitly modelled. It is argued that regional labour market modelling needs to incorporate a measure of regional prices with which to model the underlying processes.