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Interpreting Wage Bargaining Norms

  • Vartiainen, Juhana


    (National Institute of Economic Research)

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    From the mid-1990s onwards, Swedish wage bargaining has been characterised by informal co-ordination of the wage claims of big unions and bargaining cartels. In particular, it has been understood that the manufacturing sector should lead by first agreeing on a pay increase, whereafter the service sector and public sector unions choose a similar increase. We analyse his setup with two possible theoretical interpretations: (i) the manufacturing sector as a tackelberg leader and (ii) a normative role for the manufacturing sector’s pay increase, upported either by unmodelled social pressure or a modeled loss aversion (envy) of the heltered sector unions. The conclusion of the analysis is that the normative or leading role of one sector – in the Swedish case the manufacturing sector – can potentially bring big benefits for employment and output. Generalising an idea suggested by Lars Calmfors and Anna Larsson, our analysis also generates a rudimentary theory of why the wage increase norm sometimes binds and sometimes not. A comparison of the model predictions and the observed outcomes of the last five wage bargaining rounds in Sweden suggests that the model is generally consistent with the empirical observations: wage moderation and norm observance are stronger when the manufacturing industry’s initial relative wage is low.

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    Paper provided by National Institute of Economic Research in its series Working Paper with number 116.

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    Length: 39 pages
    Date of creation: 01 Feb 2010
    Date of revision:
    Handle: RePEc:hhs:nierwp:0116
    Contact details of provider: Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
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    1. Eriksson, Kimmo & Karlander, Johan & Öller, Lars-Erik, 1996. "Hierarchical Assignments: Stability and Fairness," Working Paper 50, National Institute of Economic Research.
    2. Öller, Lars-Erik & Barot, Bharat, 1999. "Comparing the Accuracy of European GDP Forecasts," Working Paper 64, National Institute of Economic Research.
    3. Huhtala, Anni & Samakovlis, Eva, 2003. "Green Accounting, Air Pollution and Health," Working Paper 82, National Institute of Economic Research.
    4. Ahlroth, Sofia & Bjorklund, Anders & Forslund, Anders, 1997. "The Output of the Swedish Education Sector," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 89-104, March.
    5. Barot, Bharat & Yang, Zan, 2002. "House Prices and Housing Investment in Sweden and the United Kingdom: Econometric Analysis for the Period 1970-1998," Working Paper 80, National Institute of Economic Research.
    6. Arai, Mahmood & Heyman, Fredrik, 2000. "Permanent and Temporary Labour: Job and Worker Flows in Sweden, 1989-1998," Working Paper 71, National Institute of Economic Research.
    7. Gren, Ing-Marie, 2003. "Monetary Green Accounting and Ecosystem Services," Working Paper 86, National Institute of Economic Research.
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