Rational Expectations and Labour Market Equilibrium in Britain 1855-1913

This paper tests a two equation model of supply and demand for labour for 1857-1913, the period which was the focus of the original Phillips curve study. The basic structure is an equilibrium model of the labour market with 'classical' characteristics arising from a surprise supply function and the assumption that expectations are formed rationally i. e. in a way consistent with the model itself. Tests of exclusion restrictions on a general reduced form tend to weakly reject these joint hypotheses. Tests on a structural model reject unanticipated wage change in a favour of actual wage change as the appropriate variable in the supply function. This gives support to the original Phillips curve formulation