A Quarterly Model of the Labour Market in Interwar Britain

In this paper, the author estimates and tests a three-equation labor-market model for the interwar period on quarterly data. The results for employment indicate that real wage effects can be i dentified in the presence of other variables and that the real wage m akes a significant contribution to variations in employment over the cycle. For the insured labor force wage, effects are hard to identify in the presence of variables reflecting the stance of the insurance system and demographic factors. Alternative views of why unemployment persisted in the 1920s and 1930s are addressed by examining the wage equation.