Determinants of wages and labour supply in the UK

We explore characteristics of the UK labour market with special emphasis on explanation of the existing wage inequalities, determinants of participation and variation in the magnitude of hours of labour supplied among individuals. We explain up to 92 percent of variance in the wage rates from the supply side. Accuracy of the model is accounted by a variety of factors relevant to the labour market, such as gender gaps, marital status, on and off the job training, fluency in English and regional characteristics. The study is quite distinct, since it not only incorporates variables pertinent form the economic point of view, but also some quantified qualitative regressors relating to individuals’ opinions and political preferences. Interestingly, we find that the psychological profile of an individual has a very big influence over his decision on whether to participate, but once he joined the labour force his personal beliefs and opinions have no further impact on the probability of finding a job. The chance of being employed once participating depends mainly on the local labour market conditions. We also report unbiased and reliable estimate of labour supply elasticity based on BHPS sample.