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Real and Nominal Wage Adjustment in Open Economies

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  • Forslund, Anders

    () (Institute for Labour Makret Policy Evaluation)

  • Gottfries, Nils

    () (Department of Economics)

  • Westermark, Andreas

    () (Department of Economics)

Abstract

A wage equation for a small open economy is derived and estimated on aggregate data for the Nordic countries. The equation is derived from a model of wage bargaining over nominal wages; hence both long run coefficients and adjustment parameters have clear economic interpretations. Wages depend on the scope (main course) for wage increases; based on our theoretical model we interpret this as evidence of union bargaining power. Unemployment benefits have substantial effects on wages in all four countries. There is substantial nominal wage rigidity; hence changes in exchange rates have large and persistent effects on competitiveness.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2005:18.

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Length: 49 pages
Date of creation: 12 Jun 2005
Date of revision:
Publication status: Forthcoming in Scandinavian Journal of Economics, 2008.
Handle: RePEc:hhs:uunewp:2005_018

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Email:
Web page: http://www.nek.uu.se/
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Related research

Keywords: wage formation; bargaining; rent sharing; turnover; search; exchange rate policy; wage equation; wage rigidity; competitiveness;

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References

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