Wages and employment: issues and evidence

The present Government has laid considerable emphasis on the notion that workers can, and indeed should, "price themselves into jobs", an emphasis apparently vindicated by the Treasury's recent review of empirical evidence concerning the relationship between
employment and wages. In this article we attempt to provide a non-technical guide to the major economic issues involved in this debate, and to provide a necessarily selective account of the empirical evidence relevant to these issues. We begin by examining one major aspect of the debate: the response of firms' demands for labour to changes in the real wage.