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Wage Formation and the Relation between Real Wages and Unemployment in Sweden

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Abstract

This paper examines the determinants of the wage level and the relation between the wage level and unemployment in Sweden between 1982 and 2002, using a cointegrated VAR approach. The long-run relation between wages and unemployment is found to be negative. There is also evidence of large deviations between the development in real wages and the development in productivity, in that the growth in real wages exceeds the growth in labour productivity. The results indicate that rigidities are present in the Swedish labour market and that these rigidities may cause higher unemployment. Furthermore, trade unions are found to have a large influence on the wage formation process.

Suggested Citation

  • Eriksson, Åsa, 2005. "Wage Formation and the Relation between Real Wages and Unemployment in Sweden," Working Papers 2006:1, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2006_001
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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP06_1.pdf
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    Keywords

    Wage formation; Unemployment; Cointegration; Common Trends;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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