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

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  • Francesco Vona

    ()
    (University of Rome ’La Sapienza’, Department of Public Economics (Italy))

  • Luca Zamparelli

    ()
    (Department of Economic Theory - Sapienza University of Rome (Italy))

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 oflow 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 Sapienza University of Rome, DISS in its series Working Papers with number 5/10.

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Date of creation: Jan 2010
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Handle: RePEc:saq:wpaper:5/10

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

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  1. Aghion, Philippe & Howitt, Peter, 1994. "Growth and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 477-94, July.
  2. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2006. "Technology-policy interaction in frictional labor markets," Working Paper, Federal Reserve Bank of Richmond 06-10, Federal Reserve Bank of Richmond.
  3. Krueger, Dirk & Kumar, Krishna B., 2004. "US-Europe differences in technology-driven growth: quantifying the role of education," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(1), pages 161-190, January.
  4. Hibbs, Douglas A, Jr & Locking, Hakan, 2000. "Wage Dispersion and Productive Efficiency: Evidence for Sweden," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 18(4), pages 755-82, October.
  5. Lennart Erixon, 2010. "The Rehn-Meidner Model in Sweden: Its Rise, Challenges and Survival," Journal of Economic Issues, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 44(3), pages 677-715, September.
  6. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1273-1319, September.
  7. 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.
  8. Moene, Karl Ove & Wallerstein, Michael, 1997. "Pay Inequality," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages 403-30, July.
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