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Centralized Wage Setting and Active Labor Market Policies in Frictional Labor Markets: The Nordic Case

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  • Francesco Vona

    (OFCE Sciences-Po, 69 quai d'Orsay, 75007, France.
    SKEMA Business School, 60 rue Dostoievski, 06902, Sophia-Antipolis, France.)

  • Luca Zamparelli

    ()
    (Department of Social Sciences, University of Rome “La Sapienza”, Piazzale A. Moro 5, 00185, Rome, Italy.)

Abstract

We adopt a standard search and matching model with endogenous job destruction to investigate two issues. First, we use a simplified version of Boeri-Burda to show that at sufficiently low levels of wage share, centralized wage bargaining performs better than decentralized bargaining in terms of average productivity, unemployment, and income inequality. Second, we incorporate active labor market policies in the model and establish that they are more effective in reducing unemployment when wage setting is centralized. Finally, numerical analysis suggests that the difference in effectiveness is sizeable.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Eastern Economic Journal.

Volume (Year): 40 (2014)
Issue (Month): 3 (June)
Pages: 349-364

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Handle: RePEc:pal:easeco:v:40:y:2014:i:3:p:349-364

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  1. Moene, Karl Ove & Wallerstein, Michael, 1997. "Pay Inequality," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages 403-30, July.
  2. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 577, C.E.P.R. Discussion Papers.
  3. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2006. "Technology-policy interaction in frictional labor markets," Working Paper, Federal Reserve Bank of Richmond 06-10, Federal Reserve Bank of Richmond.
  4. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(3), pages 1273-1319, September.
  5. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics, University of Gothenburg, Department of Economics 21, University of Gothenburg, Department of Economics.
  6. Krueger, Dirk & Kumar, Krishna B., 2004. "US-Europe differences in technology-driven growth: quantifying the role of education," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(1), pages 161-190, January.
  7. Erixon, Lennart, 2008. "The Rehn-Meidner Model in Sweden: Its Rise, Challenges and Survival," Research Papers in Economics, Stockholm University, Department of Economics 2008:2, Stockholm University, Department of Economics.
  8. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
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