Professional Earnings in the United Kingdom

Abstract

According to Adam Smith, if all individuals were alike and there were a perfectly functioning, competitive labour market, but jobs differed, then there would exist earnings differentials such that everyone would be indifferent about the job he did: that is, there would be an equalization of net advantages. Such equalization could apply to all aspects of a job, but the dimension that has most often been singled out is the preand post-job training associated with a particular job. This aspect forms the basis for human capital theory (Becker, 1967; Mincer, 1958, 1974). However, although we should expect some portion of earnings differentials across workers to reflect variations in training, it is quite readily conceivable that restrictions on entry into certain occupations can also raise relative earnings. For example, certain categories of professional workers specify requirements. A university lecturer normally requires a university degree and an architect normally requires professional qualifications in addition to a lengthy period of training. Therefore, for the purpose of studying earnings variations over professional workers, it is analytically useful to distinguish workers according to such requirements. Fortunately, the available data set does permit such a classification of professional occupations, the three categories being: professions requiring a university degree (UD), the selfregulating professions (SRP), and the rest (RES). Previous British studies on this subject are sparse, although in a recent interesting article Stephen Nickell (1982) isolates the effect of lifetime events such as spells of unemployment, sickness, and training on occupational success ranked according to occupational earnings. He considers the full range of occupations and utilizes the National Training Survey data, whereas we concentrate on professional workers and systematically examine variation in their earnings in greater detail, working with the General Household Survey data. Another important reference is the Monopolies Commission (1970) report on restrictive practices in relation to the supply of professional services. The next section discusses the raw evidence from the data, sets up the empirical formulation and presents some preliminary results. Sections II and III then systematically attempt to investigate the obtained earnings differentials. The results are summarized in the last section.