WAGE DETERMINATION IN THE UK

This paper offers a synthesis of a number of important complementary t heories of wage determination. The model is estimated and tested with respect to its long-run and dynamic properties. Applying Johansen's (1 988) FIML estimation procedure, the maximum eigenvalue and the trace t ests suggested two cointegrating vectors. One long-run vector describe s proportionality between labour productivity and real average earning s, and another the underlying theoretical model. We combined both vect ors and estimated in a second step an error correction model which was satisfactory with regard to its in-sample and out-of-sample performan ce. None of the assumptions for OLS estimation were violated and the r ecursive estimation revealed model stability. Additionally, the foreca sting ability of the model was satisfactory. The main feature of this model is that conflict elements are of paramount importance in the UK wage determination.