The Wage Curve and Local Labour Markets in New Zealand

Abstract

Blanchflower and Oswald argue in their 1994 book that there is a stable downward-sloping convex curve linking the level of pay to the local unemployment rate. They derived this so-called wage curve from measurements on individuals within regions (local labour markets) for several countries and periods. Other investigators have confirmed the robustness of this finding. In this paper we seek evidence for the wage curve in New Zealand drawing on data at the regional level by means of the /996 census of population and dwellings. New Zealand research is hampered by the inaccessibility of unit record data and the paper reports results based on publicly available grouped data. The results show that a cross-sectional wage curve does exist in New Zealand. The elasticity is in the range of-0.07 to -0.12, which is similar to results obtained for other countries. However, research to date has not been able to choose between competing explanations for this phenomenon. We argue that a better understanding of the dynamics of local labour markets is an essential requirement for further study of the wage curve.