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The Scandinavian model—An interpretation

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  • Barth, Erling
  • Moene, Karl O.
  • Willumsen, Fredrik

Abstract

The small open economies in Scandinavia have for long periods had high work effort, small wage differentials, high productivity, and a generous welfare state. To understand how this might be an economic and political equilibrium we combine models of collective wage bargaining, creative job destruction, and welfare spending. The two-tier system of wage bargaining provides microeconomic efficiency and wage compression. Combined with a vintage approach to the process of creative destruction we show how wage compression fuels investments, enhances average productivity and increases the mean wage by allocating more of the work force to the most modern activities. Finally, we show how the political support of welfare spending is fueled by both a higher mean wage and a lower wage dispersion.

Suggested Citation

  • Barth, Erling & Moene, Karl O. & Willumsen, Fredrik, 2014. "The Scandinavian model—An interpretation," Journal of Public Economics, Elsevier, vol. 117(C), pages 60-72.
  • Handle: RePEc:eee:pubeco:v:117:y:2014:i:c:p:60-72
    DOI: 10.1016/j.jpubeco.2014.04.001
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    Cited by:

    1. Tobias Emonts-Holley & Alastair Greig & Patrizio Lecca & Katerina Lisenkova & Peter G McGregor & J Kim Swales, 2017. "The impact of enhanced regional fiscal autonomy: towards a scandinavian movel for Scotland," Working Papers 1707, University of Strathclyde Business School, Department of Economics.
    2. Vidar Christiansen & Ray Rees, 2018. "Optimal Taxation in a Unionised Economy," CESifo Working Paper Series 6954, CESifo Group Munich.
    3. Kvaløy, Ola & Olsen, Trond E., 2015. "The tenuous relationship between effort and performance pay," Journal of Public Economics, Elsevier, vol. 121(C), pages 32-39.
    4. Andersen, Torben M & Kreiner, Claus Thustrup, 2013. "Baumol’s cost disease and the sustainability of the welfare state," CEPR Discussion Papers 9772, C.E.P.R. Discussion Papers.
    5. Ingvild Almås & Alexander W. Cappelen & Bertil Tungodden, 2016. "Cutthroat Capitalism versus Cuddly Socialism: Are Americans more Meritocratic and Efficiency-Seeking than Scandinavians?," CESifo Working Paper Series 6278, CESifo Group Munich.
    6. Andrea Fracasso, 2015. "Economic Rebalancing and Growth: the Japanese experience and China’s prospects," DEM Discussion Papers 2015/07, Department of Economics and Management.
    7. repec:eee:labeco:v:51:y:2018:i:c:p:247-270 is not listed on IDEAS
    8. Ragnar Nymoen, 2017. "Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation," Econometrics, MDPI, Open Access Journal, vol. 5(1), pages 1-54, January.
    9. repec:bla:econom:v:84:y:2017:i:335:p:417-429 is not listed on IDEAS
    10. Dimick, Matthew & Rao, Neel, 2016. "Wage-setting institutions and corporate governance," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 854-883.
    11. Alain Trannoy, 2015. "Inequality and welfare: Is Europe special?," Working Papers 384, ECINEQ, Society for the Study of Economic Inequality.

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    Keywords

    Welfare state; Labor markets; Investments;

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