Skip to content


Labour market heterogeneity: wage determination and unemployment duration -PhD Thesis-


Publication date



This thesis addresses the importance of individual heterogeneity in the determination of wages and unemployment durations in the UK using longitudinal data drawn from the first eight waves of the British Household Panel Survey (BHPS). The BHPS provides comprehensive information at the individual and household level. It also provides extensive information on individual labour market activity both during the panel and retrospectively from labour market entry. We utilise both aspects of this data to fully explore the impact of individual heterogeneity. Our findings suggest that individual heterogeneity is of critical importance to observed labour market behaviour. We show that over 90 percent of the variation in individual earnings can be explained by observed and unobserved individual heterogeneity. We also demonstrate that the failure to incorporate individual heterogeneity results in a significantly upward bias in the magnitude and dispersion of inter-industry wage differentials. The neglect of individual heterogeneity is also observed to significantly bias econometric estimates that measure the conditional probability of exit from unemployment. We show that the failure to incorporate unobserved individual characteristics results in a significant downward bias in the hazard rate from unemployment, thus implying spurious negative state dependence.
The central conclusion of the thesis is that empirical work which is not founded on techniques which utilise panel data can give rise to seriously misleading conclusions regarding the operation of labour markets, and, in particular, the nature of the wage determination process and the likelihood of exit from unemployment.


Labour Market and Wages And Earnings


not held in Res Lib - bibliographic reference only


Research home

Research home


Latest findings, new research

Publications search

Search all research by subject and author


Researchers discuss their findings and what they mean for society


Background and context, methods and data, aims and outputs


Conferences, seminars and workshops

Survey methodology

Specialist research, practice and study

Taking the long view

ISER's annual report


Key research themes and areas of interest