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Individual Wage Setting, Efficiency Wages and Productivity in Sweden

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  • Lundborg, Per

    (Trade Union Institute for Economic Research)

Abstract

Swedish wage setting has undergone drastic changes during the last 10-15 years. While Sweden was known for its narrow wage distribution, wage differentiation and wage bargaining at the individual level has become leading principles among white-collar workers’ unions. The purpose of the present paper is to analyse the consequences of this wage policy shift. Wage differences have increased drastically among white-collar workers while remained constant or even decreased among blue collar workers. We show that wage differentiation has had a strong effect on white collar workers’ average wage, and caused a major increase in the wage gap between the aggregates of whitecollar and blue-collar workers. We also show that increases in the coefficient of variation of wages raise productivity in firms with many workers in that worker category. Last and foremost, we show that the transition to individual wage setting raises the scope for firms to set efficiency wages and we find support for the fair wage version of efficiency wage setting. The effects of higher wage/fair wage rates were stronger in the late 1990s, when wage differentiation increased more, than in the early 2000s.

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File URL: http://swopec.hhs.se/fiefwp/papers/WP205.pdf
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Bibliographic Info

Paper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 205.

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Length: 27 pages
Date of creation: 09 Sep 2005
Date of revision:
Handle: RePEc:hhs:fiefwp:0205

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Keywords: Efficiency wages; productivity; wage differentials;

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References

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  1. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, University of Gothenburg, Department of Economics.
  2. Leonard, Jonathan S, 1987. "Carrots and Sticks: Pay, Supervision, and Turnover," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S136-52, October.
  3. Harry J. Holzer, 1989. "Wages, Employer Costs, and Employee Performance in the Firm," NBER Working Papers 2830, National Bureau of Economic Research, Inc.
  4. Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-15, September.
  5. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
  6. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, Octomber.
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Cited by:
  1. Eliasson, Kent, 2006. "How Robust is the Evidence on the Returns to College Choice? Results Using Swedish Administrative Data," UmeÃ¥ Economic Studies 692, Umeå University, Department of Economics.
  2. Davis, Steven J. & Henrekson, Magnus, 2007. "Economic Perfomance and Market Work Activity in Sweden after the Crisis of the Early 1990s," Working Paper Series 687, Research Institute of Industrial Economics.
  3. Steven J. Davis & Magnus Henrekson, 2006. "Economic Performance and Work Activity in Sweden after the Crisis of the Early 1990s," NBER Working Papers 12768, National Bureau of Economic Research, Inc.
  4. Eliasson, Kent, 2006. "College Choice And Earnings Among University Graduates In Sweden," UmeÃ¥ Economic Studies 693, Umeå University, Department of Economics.
  5. Stenberg, Anders, 2007. "Does adult education at upper secondary level influence annual wage earnings?," Working Paper Series 2007:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  6. Peter Fredriksson & Robert H. Topel, 2010. "Wage Determination and Employment in Sweden Since the Early 1990s: Wage Formation in a New Setting," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 83-126 National Bureau of Economic Research, Inc.
  7. Eliasson, Kent, 2006. "The Role of Ability in Estimating the Returns to College Choice: New Swedish Evidence," UmeÃ¥ Economic Studies 691, Umeå University, Department of Economics.
  8. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.

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