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

  • Karsten Albaek

    (University of Copenhagen)

  • Rita Asplund

    (Research Institute of the Finnish Economy)

  • Erling Barth

    (University of Tromso)

  • Stig Blomskog

    (University College of South Stockholm)

  • Bjorn Runar Gudmundsson

    (Ministry of Finance)

  • Vifill Karlsson

    (Icelandic University College of Business Administration)

  • Erik Strojer Madsen

    (Aarhus Business School)

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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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1893.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1893
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  1. 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.
  2. 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.
  3. Kare Johansen, 1997. "The wage curve: convexity, kinks and composition effects," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 71-78.
  4. Blanchard, O & Katz, L, 1996. "What We Know and Do Not Know about the Natural Rate of Unemployment," Working papers 96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Holden, Steinar, 1998. " Wage Drift and the Relevance of Centralised Wage Setting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(4), pages 711-31, December.
  6. 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.
  7. 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.
  8. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-83, June.
  9. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  10. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  11. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  12. Barro, Robert J, 1988. "The Persistence of Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 32-37, May.
  13. Rodseth,A. & Nymoen,R., 1999. "Nordic wage formation and unemployment seven years later," Memorandum 10/1999, Oslo University, Department of Economics.
  14. Raaum, O. & Wulfsberg, F., 1995. "Unemployment, Labour Market Programmes and Wages in Norway," Memorandum 24/1995, Oslo University, Department of Economics.
  15. Longva, P. & Raaum, O., 1998. "Unemployment and Relative Earnings of Immigrants," Memorandum 02/1998, Oslo University, Department of Economics.
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