Interpreting Wage Bargaining Norms

Juhana Vartiainen ()
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Juhana Vartiainen: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

No 116, Working Papers from National Institute of Economic Research

Abstract: 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.

Keywords: wage bargaining; bargaining co-ordination (search for similar items in EconPapers)
JEL-codes: J31 J52 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-02-01
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (7)

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