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

Francesco Vona () and Luca Zamparelli ()

No 5/10, Working Papers from Sapienza University of Rome, DISS

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.

Keywords: Centralized wage setting; structural change; labor market policy; frictional unemployment (search for similar items in EconPapers)
JEL-codes: J31 J60 L16 (search for similar items in EconPapers)
Date: 2010-01
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Working Paper: Centralized Wage Setting and Labor Market Policies: the Nordic Model Case (2010) Downloads
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