Centralized Wage Setting and Active Labor Market Policies in Frictional Labor Markets: The Nordic Case

Francesco Vona and Luca Zamparelli

Eastern Economic Journal, 2014, vol. 40, issue 3, 349-364

Abstract: We adopt a standard search and matching model with endogenous job destruction to investigate two issues. First, we use a simplified version of Boeri-Burda to show that at sufficiently low levels of wage share, centralized wage bargaining performs better than decentralized bargaining in terms of average productivity, unemployment, and income inequality. Second, we incorporate active labor market policies in the model and establish that they are more effective in reducing unemployment when wage setting is centralized. Finally, numerical analysis suggests that the difference in effectiveness is sizeable.

Date: 2014
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Working Paper: Centralized wage setting and labor market policies: the nordic model case (2010)
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