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Centralized Wage Setting and Labor Market Policies: the Nordic Model Case

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  • Luca Zamparelli

    ()
    (Department of Economic Theory, Sapienza University of Rome)

  • Francesco Vona

    ()
    (Department of Public Economics, Sapienza University of Rome)

Abstract

It is often argued that rigid labour market and centralized bargaining are harmful employment and growth. This paper looks at the case of Nordic countries as a counter-example pointing to some weaknesses of this view. Rigid labour markets, while reducing the offer of low quality jobs, increase average labor productivity by favoring job relocation in high quality jobs. Moene and Wallerstein (1997) adopted a vintage-capital model to compare centralized and decentralized bargaining: they show that centralized bargaining systems yield higher labor productivity and higher structural unemployment. By introducing a frictional labor market in the vintage-capital framework, we show that the negative effects on employment characterizing centralized bargaining can be reduced by adopting active labor market policy.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CELEG with number 1005.

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Date of creation: 2010
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Handle: RePEc:lui:celegw:1005

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Keywords: Centralized wage setting; structural change; labor market policy; frictional unemployment;

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  1. Krueger, Dirk & Kumar, Krishna B., 2004. "US-Europe differences in technology-driven growth: quantifying the role of education," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 161-190, January.
  2. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  3. Moene, Karl Ove & Wallerstein, Michael, 1997. "Pay Inequality," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 403-30, July.
  4. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, University of Gothenburg, Department of Economics.
  5. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2007. "Technology—Policy Interaction in Frictional Labour-Markets," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1089-1124.
  6. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
  7. Lennart Erixon, 2010. "The Rehn-Meidner Model in Sweden: Its Rise, Challenges and Survival," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 44(3), pages 677-715, September.
  8. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1273-1319, September.
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