Abstract
This article explores whether a relationship exists between the skill shortages that a market faces, and the wages in the market, using both pseudo panel and individual wage equations over the period 2004-2014. Both sets of results suggest that workers in markets with higher levels of skill shortages receive higher wages, although this effect is minimal. For the average individual in the dataset, a one standard deviation increase in the level of skill shortages would lead to a wage increase from £9.36 an hour to £9.38. Given the average hours worked for UK citizens, this translates to a yearly wage increase of £34. The results suggest that the link between these two variables is not strong enough to encourage workers to retrain, and thus the issue of skill mismatch will persist.
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