Prices, Productivity and Wage Bargaining in Open Economies*

Anders Forslund (), Nils Gottfries () and Andreas Westermark

Scandinavian Journal of Economics, 2008, vol. 110, issue 1, 169-195

Abstract: According to the standard union bargaining model, unemployment benefits should have big effects on wages, but product‐market prices and productivity should play no role in the wage bargain. We formulate an alternative strategic bargaining model, where labour and product‐market conditions together determine wages. A wage equation is derived and estimated on aggregate data for four Nordic countries. Wages are found to depend not only on unemployment and the replacement ratio, but also on productivity, international prices and exchange rates. There is evidence of considerable nominal wage rigidity. Exchange rate changes have large and persistent effects on competitiveness.

Date: 2008
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https://doi.org/10.1111/j.1467-9442.2008.00531.x

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