Ideal Index Numbers of Earnings: An Empirical Study for Great Britain¹

Article type: Research Article

Authors: Westaway, A.J.^a | Fleming, M.C.^a

Affiliations: [a] Department of Economics, Loughhorough University, Loughhorough, Leicestershire, LE11 3TU, United Kingdom

Note: [1] Thanks are due to David Lauder for his work in compiling the data used in this study and to Loughborough University Research Committee for financial assistance. We are also grateful to Ralph Turvey and Martin Fessey for comments on an earlier draft. Naturally, the authors alone remain responsible for the contents of the article.

Abstract: Two aspects of the methodology for constructing index numbers of average earnings are investigated using data for the UK. Although trends in average earnings reflect changes in both industrial structure and the composition of the labour force, it is common to compute indices which ignore compositional changes other than those at the industrial level (as in the UK). First, this article examines the effect of standardising at both levels using UK data for the period 1971–92. Secondly, it considers the practical significance of using alternative index number formulae which possess certain desirable properties. It is concluded that the official series is subject to unnecessary error components which result in a non-negligible upward bias.

DOI: 10.3233/JEM-1995-21301

Journal: Journal of Economic and Social Measurement, vol. 21, no. 3, pp. 163-185, 1995