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

Author

Listed:
  • 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.

Suggested Citation

  • Francesco Vona & Luca Zamparelli, 2010. "Centralized Wage Setting and Labor Market Policies: the Nordic Model Case," Working Papers 5/10, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:5/10
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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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