Whilst local pay differentials lie at the heart of most models of local labour markets, not enough is known about the size and trends of such differentials in Great Britain. This study is based on a new data set, derived from Inland Revenue and Department of Social Security statistics, for a 1 per cent sample of National Insurance records. The information was available at the detailed Local Labour Market Area level annually from 1975-76 to 1987-88, disaggregated by sex, age, industry and (for women) marital status. The data showed a marked widening of local pay differentials in the late 1980s. Much of the cross-sectional variation reflected a differential between Greater London and the rest of the country (partly reflected in house prices). The trend towards increasing local pay differentials over time was still in evidence, however, even when labour markets in the South East were excluded from the sample.
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