LONG-TERM UNEMPLOYMENT AND US STATE WAGES

During the 1980s, rising European unemployment without rapidly subsidi ng wage pressure challenged conventional labour market theories. One e xplanation is that a greater proportion of unemployment that is long-t erm unemployment (LTU) reduces downward wage pressure. Empirical evide nce regarding this proposition is mixed, where it is possible the rela tionship varies across countries. Hence, this study examines the LTU-w age relationship for the US using 1976-91 state-level data. The result s suggest that a greater LTU proportion is positively related to wages , but the result should be interpreted cautiously. Thus, US labour mar kets may be 'tighter' than previously suspected.