Wage Compression and Welfare in Sweden
AbstractThis paper calculates the quantitative significance of the welfare effects of wage compression in Sweden. This is done in a dynamic general equilibrium model with overlapping generations where agents choose both schooling (human capital) and assets (physical capital). This paper shows that when labor markets are competitive even low levels of wage compression lead to large welfare losses, since wage compression creates costly unemployment among low-skilled workers. This welfare loss can be significantly reduced (but not eliminated) if firms and unions bargain over efficient labor contracts. In both cases, the effect of wage compression on the supply of skilled labor is rather small, since the disincentive effect of a lower, high-skilled wage is, to a large extent, offset by a lower opportunity cost of schooling due to higher unemployment.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2000:4.
Length: 46 pages
Date of creation: 20 Jan 2000
Date of revision:
Contact details of provider:
Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
Web page: http://www.ne.su.se/
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Choice of schooling; quantitative macroeconomics; unemployment; university premium; wage compression; welfare;
Other versions of this item:
- Matthew J. Lindquist, 2000. "Wage Compression and Welfare in Sweden," Econometric Society World Congress 2000 Contributed Papers 0418, Econometric Society.
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-04-17 (All new papers)
- NEP-DGE-2000-04-17 (Dynamic General Equilibrium)
- NEP-LAB-2000-04-17 (Labour Economics)
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- Lindquist, Matthew J., 2005.
"Capital-Skill Complementarity and Inequality in Sweden,"
Working Paper Series
2/2005, Swedish Institute for Social Research.
- Matthew J. Lindquist, 2005. "Capital-Skill Complementarity and Inequality in Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 711-735, December.
- Lindquist, Matthew J., 2005. "The welfare costs of union wage compression," European Economic Review, Elsevier, vol. 49(3), pages 639-658, April.
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