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Survey evidence on wage rigidity and unemployment: Sweden in the 1990s

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  • Jonas Agell
  • Per Lundborg

Abstract

This study reports the results from a repeat survey among managers in Swedish manufacturing, designed to explore how a severe and prolonged macroeconomic shock affects wage rigidity and unemployment. Our second survey was conducted in 1998, when the unemployment rate was much higher, and the inflation rate much lower, than when we conducted the first survey in 1991. We find no evidence that the increase in unemployment has softened the mechanisms generating wage rigidity. On the contrary, we conclude that – because of severe downward nominal wage rigidity – real wages have become more rigid during Sweden’s move to a low-inflation environment. We also report a range of new evidence on underbidding, efficiency wage mechanisms, job security legislation, workers’ wage norms, and to what extent the long-term unemployed are subject to statistical discrimination.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 99-15.

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Handle: RePEc:kud:epruwp:99-15

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  1. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 106-134, February.
  2. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  3. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  4. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November.
  5. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  6. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
  7. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  8. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  9. Agell, Jonas & Lundborg, Per, 1993. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Working Paper Series 380, Research Institute of Industrial Economics.
  10. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  11. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  12. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
  13. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier.
  14. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, vol. 38(5), pages 1021-1039, May.
  15. Calmfors, Lars, 1993. "Lessons from the macroeconomic experience of Sweden," European Journal of Political Economy, Elsevier, vol. 9(1), pages 25-72, March.
  16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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