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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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References

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  1. Barro, Robert J, 1988. "The Persistence of Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 32-37, May.
  2. Raaum, O. & Wulfsberg, F., 1995. "Unemployment, Labour Market Programmes and Wages in Norway," Memorandum 24/1995, Oslo University, Department of Economics.
  3. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  4. Edin, P.A. & Holmlund, B. & Ostros, T., 1992. "Wage Behavior and Labor Market Programs in Sweden: Evidence from Micro Data," Papers 1993-1, Uppsala - Working Paper Series.
  5. Holden, S., 1998. "Wage Drift and the Relevance of Centralised Wage Setting," Memorandum 04/1998, Oslo University, Department of Economics.
  6. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  7. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  8. Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633 Elsevier.
  9. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-83, June.
  10. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
  11. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  12. Rodseth,A. & Nymoen,R., 1999. "Nordic wage formation and unemployment seven years later," Memorandum 10/1999, Oslo University, Department of Economics.
  13. repec:fth:prinin:343 is not listed on IDEAS
  14. Kare Johansen, 1997. "The wage curve: convexity, kinks and composition effects," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 71-78.
  15. Longva, P. & Raaum, O., 1998. "Unemployment and Relative Earnings of Immigrants," Memorandum 02/1998, Oslo University, Department of Economics.
  16. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
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Cited by:
  1. Pablo García & Paulina Granados, 2005. "The Wage Curve in Chile," Working Papers Central Bank of Chile 320, Central Bank of Chile.
  2. Roberto Bande Ramudo & Melchor Fernández Fernández & Víctor Montuenga Gómez, 2011. "Wage flexibility and local labour markets: homogeneity of the wage curve in Spain," Documentos de trabajo - Analise Economica 0044, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
  3. Sari Pekkala, 2003. "Is Little Brother Nothing but Trouble?: Educational Attainment, Returns to Schooling and Sibling Structure," Discussion Papers 302, Government Institute for Economic Research Finland (VATT).
  4. Morten Marott Larsen, 2003. "Regional wage differentials - does distance matter?," ERSA conference papers ersa03p418, European Regional Science Association.
  5. Barth, Erling & Bratsberg, Bernt & Raaum, Oddbjørn, 2003. "Local Unemployment and the Earnings Assimilation of Immigrants in Norway," Memorandum 19/2002, Oslo University, Department of Economics.
  6. Maczulskij, Terhi, 2013. "Public–private sector wage differentials and the business cycle," Economic Systems, Elsevier, vol. 37(2), pages 284-301.
  7. 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, issue 24, pages 41-58.
  8. repec:ese:iserwp:2009-17 is not listed on IDEAS
  9. Sari Pekkala, 2003. "What Draws People to Urban Growth Centers: Jobs vs. Pay?," Discussion Papers 310, Government Institute for Economic Research Finland (VATT).
  10. Barth, Erling & Bratsberg, Bernt & Naylor, Robin A. & Raaum, Oddbjørn, 2002. "Explaining Variations in Wage Curves: Theory and Evidence," Memorandum 03/2002, Oslo University, Department of Economics.

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