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Wage and Profitability: Norwegian Manufacturing 1967-1998

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Abstract

Economic theories of imperfectly competitive labour markets predict that wages are linked to profits. In spite of this, profit variables are not explicitly specified in empirical models of wage formation that otherwise are appealing. Does this mean that theory overplays the role of profitability in wage formation? The answer is probably not: Using Norwegian wage formation as an example, we model the dereminants of profitability within a vector autoregressive model and show that existing wage equations that have been successful empirically in fact contain a close linkage between wage setting and profits.

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  • Roger Bjørnstad & Ragnar Nymoen, 1999. "Wage and Profitability: Norwegian Manufacturing 1967-1998," Discussion Papers 259, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:259
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    Keywords

    Cointegration; incomes policy; profitability; rate-of-return; vector autoregressive model; wage formation.;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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