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Wage-setting Institutions as Industrial Policy

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Author Info
Davis, Steven J. () (Graduate School of Business)
Henrekson, Magnus () (Dept. of Economics, Stockholm School of Economics)

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Abstract

Centralized wage-setting institutions compress relative wages. Motivated by this fact, we investigate the effects of centralized wage setting on the industry distribution of employment. We examine Sweden's industry distribution from 1960 to 1994 and compare it to the U.S. distribution over the same period. We relate U.S.-Swedish differences in the industry distribution and their evolution over time to the structure of relative wages between and within industries. The empirical results identify the rise and fall of centralized wage-setting arrangements as a major factor in the evolution of Sweden' industry distribution. The compression associated with centralized wage-setting shifted the industry distribution of Swedish employment in three respects: away from industries with high wage dispersion among workers, away from industries with a high mean wage, and, most powerfully, away from industries with a low mean wage. By the middle 1980s, these wage structure effects accounted for about 40 percent of U.S.-Swedish differences in the industry distribution. The dissolution of Sweden's centralized wage-setting arrangements beginning in 1983 led to widening wage differentials and a reversal in the evolution of U.S.-Swedish differences in industry structure.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 352.

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Length: 58 pages
Date of creation: 28 Jan 2000
Date of revision: 05 Aug 2003
Publication status: Published in Labour Economics, 2005, pages 345-377.
Handle: RePEc:hhs:hastef:0352

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Related research
Keywords: Industry distribution of employment; Labor market institutions; labor market policy; wage dispersion; wage-setting institutions;

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Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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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. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June. [Downloadable!] (restricted)
  2. Erik Norrman & Charles E. McLure Jr., 1997. "Tax Policy in Sweden," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 109-154 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Segal, Lewis M & Sullivan, Daniel G, 1997. "The Growth of Temporary Services Work," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 117-36, Spring. [Downloadable!] (restricted)
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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. Henrekson, Magnus & Dreber, Anna, 2004. "Female Career Success: Institutions, Path Dependence and Psychology," Working Paper Series in Economics and Finance 574, Stockholm School of Economics, revised 27 Jan 2005.
  2. Gerlach, Knut & Stephan, Gesine, 2005. "Tarifverträge und betriebliche Entlohnungsstrukturen," IAB Discussion Paper 200520, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  3. Forslund, Anders & Lindh, Thomas, 2004. "Decentralisation of bargaining and manufacturing employment: Sweden 1970-96," Working Paper Series 2004:3, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  4. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," Ratio Working Papers 57, The Ratio Institute. [Downloadable!]
    Other versions:
  5. Giuseppe Bertola & Francine Blau & Lawrence Kahn, 2007. "Labor market institutions and demographic employment patterns," Journal of Population Economics, Springer, vol. 20(4), pages 833-867, October. [Downloadable!] (restricted)
    Other versions:
  6. Henrekson, Magnus & Rosenberg, Nathan, 2000. "Designing Efficient Institutions for Science-Based Entrepreneurship: Lessons from the US and Sweden," Working Paper Series in Economics and Finance 410, Stockholm School of Economics. [Downloadable!]
    Other versions:
  7. Henrekson, Magnus & Rosenberg, Nathan, 2000. "Incentives for Academic Entrepreneurship and Economic Performance: Sweden and the United States," Working Paper Series in Economics and Finance 362, Stockholm School of Economics. [Downloadable!]
    Other versions:
  8. Richard B. Freeman, 2000. "Single Peaked Vs. Diversified Capitalism: The Relation Between Economic Institutions and Outcomes," NBER Working Papers 7556, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Davidsson, Per & Henrekson, Magnus, 2000. "Determinants of the Prevalence of Start-ups and High-Growth Firms," Working Paper Series in Economics and Finance 381, Stockholm School of Economics, revised 26 May 2002. [Downloadable!]
    Other versions:
  10. Alun H. Thomas, 2002. "The Costs and Benefits of Various Wage Bargaining Structures: An Empirical Exploration," IMF Working Papers 02/71, International Monetary Fund. [Downloadable!]
  11. Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Yılmaz Kılıçaslan & Erol Taymaz, 2008. "Labor market institutions and industrial performance: an evolutionary study," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 477-492, August. [Downloadable!] (restricted)
  13. Svaleryd, Helena & Vlachos, Jonas, 2002. "Financial Markets, Industrial Specialization and Comparative Advantage - Evidence from OECD Countries," Research Papers in Economics 2002:6, Stockholm University, Department of Economics. [Downloadable!]
  14. Luigi Bonatti, 2000. "A two-sector model of the effects of wage compression on unemployment and industry distribution of employment," Department of Economics Working Papers 0001, Department of Economics, University of Trento, Italia. [Downloadable!]
  15. Henrekson, Magnus & Jakobsson, Ulf, 2003. "The Swedish Model of Corporate Ownership and Control in Transition," Working Paper Series in Economics and Finance 521, Stockholm School of Economics, revised 16 Apr 2003. [Downloadable!]
    Other versions:
  16. Lawrence Kahn, 2002. "The Impact of Wage-Setting Institutions on the Incidence of Public Employment in the OECD: 1960-98," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  17. Raquel Fonseca & Natalia Utrero, 2006. "Employment Protection Laws, Barriers to Entrepreneurship, Financial Markets and Firm Size," Working Papers 454, RAND Corporation Publications Department. [Downloadable!]
  18. Steven J. Davis & Luis Rivera-Batiz, 2005. "The Climate for Business Development and Employment Growth in Puerto Rico," NBER Working Papers 11679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Vlachos, Jonas & Svaleryd, Helena, 2001. "Financial Markets, the Pattern of Specialization and Comparative Advantage. Evidence from OECD countries," Working Paper Series in Economics and Finance 449, Stockholm School of Economics, revised 03 Sep 2001. [Downloadable!]
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