The Effects of Macroeconomic Policy Shocks on the UK Labour Market

Download or read book The Effects of Macroeconomic Policy Shocks on the UK Labour Market written by Athanasios Tagkalakis and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the dynamic response of employment, average hours and real wages to monetary, government spending and net taxes shocks in the UK for the 1970 Q1-2003 Q1 period. The response of labour market variables to a monetary policy shock are in line with economic theory and previous empirical evidence. The adjustment of labour input is primarily along the extensive margin. However, there is also significant adjustment along the intensive margin one year after the shock. Over the more recent period this result is overturned with bigger and faster response in average hours two quarters after the shock. We interpret this result as being suggestive of labour market reforms during the 1980s having reduced the labour adjustment costs. A government spending shock leads to negative employment, hours and output responses, while real wages increase. It is attributed to the government consumption part of spending, and in particular its wage bill component. The effect of a net tax shock generates transitory negative effects on employment and hours, that become positive raising output after the second quarter. The output effects of both spending and tax shocks are in line with previous UK evidence.