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Dimensions of the Wage-Unemployment Relationship in the Nordic Countries: Wage Flexibility without Wage Curves

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Author Info

  • Karsten Albæk

    (Institute of Economics, University of Copenhagen)

  • Rita Asplund

    (The Research Institute of the Finnish Economy, Helsinki)

  • Stig Blomskog

    (University College of South Stockholm)

  • Erling Barth

    (Institute for Social Research, Oslo)

  • Björn Rúnar Guðmundsson

    (Ministry of Finance, Iceland)

  • Vifill Karlsson

    (The Icelandic University College of Business Administration)

  • Erik Strøjer Madsen

    (Aarhus Business School)

Abstract

This paper analyses wage formation in the Nordic countries at the regional level by the use of micro-data. Our results deviate systematically from the main conclusions drawn by Blanchflower and Oswald (1994). We find no stable negative relation between wages and unemployment across regions in the Nordic labor markets once regional fixed effects are accounted for. Wage formation at the regional level is characterized by considerable persistence, but unemployment exerts no immediate influence on wages at the regional level. There is no evidence of a wage curve, nor of a Phillips curve, at the regional level in the Nordic countries. The results are consistent with a theoretical model where central bargaining agents determine a national wage increment, and local bargaining agents determine wage drift.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 99-24.

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Length: 50 pages
Date of creation: Nov 1999
Date of revision:
Handle: RePEc:kud:kuiedp:9924

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Keywords: wage curve; Phillips curve; regional unemployment and wages;

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  1. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  2. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, Elsevier, vol. 32(3), pages 385-397, August.
  3. Rodseth,A. & Nymoen,R., 1999. "Nordic wage formation and unemployment seven years later," Memorandum, Oslo University, Department of Economics 10/1999, Oslo University, Department of Economics.
  4. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Holden, S., 1998. "Wage Drift and the Relevance of Centralised Wage Setting," Memorandum, Oslo University, Department of Economics 04/1998, Oslo University, Department of Economics.
  6. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 69-74, May.
  7. Edin, P.A. & Holmlund, B. & Ostros, T., 1992. "Wage Behavior and Labor Market Programs in Sweden: Evidence from Micro Data," Papers, Uppsala - Working Paper Series 1993-1, Uppsala - Working Paper Series.
  8. Raaum, O. & Wulfsberg, F., 1995. "Unemployment, Labour Market Programmes and Wages in Norway," Memorandum, Oslo University, Department of Economics 24/1995, Oslo University, Department of Economics.
  9. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers 99-10, University of Copenhagen. Department of Economics.
  10. repec:fth:prinin:343 is not listed on IDEAS
  11. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(391), pages 471-83, June.
  12. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
  13. Barro, Robert J, 1988. "The Persistence of Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 32-37, May.
  14. Longva, P. & Raaum, O., 1998. "Unemployment and Relative Earnings of Immigrants," Memorandum, Oslo University, Department of Economics 02/1998, Oslo University, Department of Economics.
  15. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(3), pages 153-167, Summer.
  16. Kare Johansen, 1997. "The wage curve: convexity, kinks and composition effects," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 29(1), pages 71-78.
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Cited by:
  1. García-Mainar , Inmaculada & Montuenga-Gómez , Víctor M., 2012. "Wage dynamics in Spain: evidence from individual data (1994-2001)," Investigaciones Regionales, Asociación Española de Ciencia Regional, Asociación Española de Ciencia Regional, issue 24, pages 41-58.
  2. Morten Marott Larsen, 2003. "Regional wage differentials - does distance matter?," ERSA conference papers ersa03p418, European Regional Science Association.
  3. Barth, Erling & Bratsberg, Bernt & Raaum, Oddbjørn, 2003. "Local Unemployment and the Earnings Assimilation of Immigrants in Norway," Memorandum, Oslo University, Department of Economics 19/2002, Oslo University, Department of Economics.
  4. Barth, Erling & Bratsberg, Bernt & Naylor, Robin A. & Raaum, Oddbjørn, 2002. "Explaining Variations in Wage Curves: Theory and Evidence," Memorandum, Oslo University, Department of Economics 03/2002, Oslo University, Department of Economics.
  5. Victor Montuenga & Roberto Bande & Melchor Fernandez, 2011. "Wage flexibility and local labour markets: homogeneity of the wage curve in Spain," ERSA conference papers ersa11p414, European Regional Science Association.
  6. Pablo García & Paulina Granados, 2005. "The Wage Curve in Chile," Working Papers Central Bank of Chile, Central Bank of Chile 320, Central Bank of Chile.
  7. Sari Pekkala, 2003. "What Draws People to Urban Growth Centers: Jobs vs. Pay?," Discussion Papers, Government Institute for Economic Research Finland (VATT) 310, Government Institute for Economic Research Finland (VATT).
  8. Maczulskij, Terhi, 2013. "Public–private sector wage differentials and the business cycle," Economic Systems, Elsevier, Elsevier, vol. 37(2), pages 284-301.
  9. repec:ese:iserwp:2009-17 is not listed on IDEAS
  10. Sari Pekkala, 2003. "Is Little Brother Nothing but Trouble?: Educational Attainment, Returns to Schooling and Sibling Structure," Discussion Papers, Government Institute for Economic Research Finland (VATT) 302, Government Institute for Economic Research Finland (VATT).

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