The Wage Curve.

• Author: Ewing, Bradley T.

Few books have received as much attention as The Wage Curve. But then, few books have as much to offer as this one. What does this book offer? Blanchflower and Oswald might say that it merely documents the existence of an empirical "law" of economics. The opening quote to chapter 5 by Ronald Coase more appropriately sums up the books addition to economics: "Inspiration is most likely to come through the stimulus provided by the patterns, puzzles and anomalies revealed by the systematic gathering of data, particularly when the prime need is to break our existing habits of thought" [p. 209]. The Wage Curve lays the groundwork for new ideas.

The link between macroeconomics and labor economics is fundamental to the study of economics. However, traditional treatment of the subject has viewed the labor market as competitive. Wages and unemployment are positively related, stemming from a Harris-Todaro theory of compensating differentials. The macroeconomics literature is full of stylized facts, relationships that are found to hold so much of the time that economists accept them as fact. Stylized facts are not found as readily in the labor literature. Through the use of microeconomic data Blanchflower and Oswald document the existence of a negative relationship between local unemployment and wages. Labor markets do not work in the classic textbook manner. Wages are high in places with low unemployment and low in regions with high unemployment. The pattern appears to hold by industry sector, as well. A new stylized fact has emerged.

The first three chapters of the book provide the reader with an idea of what Blanchflower and Oswald set out to do and why. There is a thorough discussion of previous research on wages and unemployment across space. Given the results to date, one can not help but conclude that the evidence "is not reconciled with the textbook model of the labor market" [p. 36]. A chapter is devoted to theoretical issues and may be considered lengthy to most labor and regional economists. Basically, Blanchflower and Oswald describe and develop models that predict wages to be negatively related to local rates of unemployment. Contract theory, efficiency wage models, and bargaining models are all discussed in a regional setting. The authors are careful to point out that they do not totally disregard the theory of compensating differentials.

Evidence of a wage curve for the United States is presented in chapter 4. At this point the book...