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Individual Wage Setting, Efficiency Wages and Productivity in Sweden

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Author Info
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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Publisher 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
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Handle: RePEc:hhs:fiefwp:0205

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Related research
Keywords: Efficiency wages; productivity; wage differentials;

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, Göteborg University, Department of Economics. [Downloadable!]
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  2. 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. [Downloadable!] (restricted)
  3. Harry J. Holzer, 1990. "Wages, Employer Costs, and Employee Performance in the Firm," NBER Working Papers 2830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. David Levine, 1991. "You Get What You Pay For: Tests of Efficency Wage Theories in the United States and Japan," Institute for Research on Labor and Employment, Working Paper Series 1054, Institute of Industrial Relations, UC Berkeley. [Downloadable!]
  5. Jonathan S. Leonard, 1987. "Carrots and Sticks: Pay, Supervision and Turnover," NBER Working Papers 2176, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. 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(1988-2), pages 495-594. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Davis, Steven J. & Henrekson, Magnus, 2007. "Economic Perfomance and Work Activity in Sweden after the Crisis of the Early 1990s," Working Paper Series 687, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
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