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Prices, Productivity and Wage Bargaining in Open Economies

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  • Anders Forslund
  • Nils Gottfries
  • Andreas Westermark

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.

Suggested Citation

  • Anders Forslund & Nils Gottfries & Andreas Westermark, 2008. "Prices, Productivity and Wage Bargaining in Open Economies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 169-195, March.
    • Handle: RePEc:bla:scandj:v:110:y:2008:i:1:p:169-195
    DOI: 10.1111/j.1467-9442.2008.00531.x
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    References listed on IDEAS

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    1. Forslund, Anders & Gottfries, Nils & Westermark, Andreas, 2005. "Real and nominal wage adjustment in open economies," Working Paper Series 2005:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
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    Citations

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    Cited by:

    1. Bertil Holmlund, 2013. "Wage and employment determination in volatile times: Sweden 1913-1939," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 7(2), pages 131-159, May.
    2. Gunnar Bårdsen & Jurgen A. Doornik & Jan Tore Klovland, 2010. "Wage Formation and Bargaining Power during the Great Depression," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(1), pages 211-233, March.
    3. Mikael Carlsson & Stefan Eriksson & Nils Gottfries, 2013. "Product market imperfections and employment dynamics," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 447-470, April.
    4. Brücker, Herbert & Hauptmann, Andreas & Jahn, Elke J. & Upward, Richard, 2014. "Migration and imperfect labor markets: Theory and cross-country evidence from Denmark, Germany and the UK," European Economic Review, Elsevier, vol. 66(C), pages 205-225.
    5. Marit Linnea Gjelsvik & Victoria Sparrman & Ragnar Nymoen, 2015. "Have inflation targeting and EU labour immigration changed the system of wage formation in Norway?," Discussion Papers 824, Statistics Norway, Research Department.
    6. repec:ilo:ilowps:470930 is not listed on IDEAS
    7. Rita Duarte & Carlos Marques, 2013. "The dynamic effects of shocks to wages and prices in the United States and the Euro Area," Empirical Economics, Springer, vol. 44(2), pages 613-638, April.
    8. Fromlet, Pia, 2013. "Exchange Rates, Wages, and Export Price Dynamics," Working Papers 132, National Institute of Economic Research.
    9. Ragnar Nymoen, 2017. "Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation," Econometrics, MDPI, vol. 5(1), pages 1-54, January.
    10. Eriksson, Stefan & Stadin, Karolina, 2015. "What are the determinants of hiring? The role of demand and supply factors," Working Paper Series 2015:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    11. Storm, Servaas. & Naastepad, C.W.M.,, 2012. "Wage-led or profit-led supply : wages, productivity and investment," ILO Working Papers 994709303402676, International Labour Organization.
    12. Marit Gjelsvik & Ragnar Nymoen & Victoria Sparrman, 2020. "Cointegration and Structure in Norwegian Wage–Price Dynamics," Econometrics, MDPI, vol. 8(3), pages 1-15, July.
    13. Nils Gottfries, 2018. "The labor market in Sweden since the 1990s," IZA World of Labor, Institute of Labor Economics (IZA), pages 411-411, July.
    14. Bårdsen, Gunnar & den Reijer, Ard & Jonasson, Patrik & Nymoen, Ragnar, 2012. "MOSES: Model for studying the economy of Sweden," Economic Modelling, Elsevier, vol. 29(6), pages 2566-2582.
    15. Alecos Papadopoulos, 2024. "The Nash Bargaining Two-tier Stochastic Frontier Model," Advances in Econometrics, in: Essays in Honor of Subal Kumbhakar, volume 46, pages 439-476, Emerald Group Publishing Limited.
    16. Stefan Eriksson & Karolina Stadin, 2017. "What are the determinants of hiring? The importance of product market demand and search frictions," Applied Economics, Taylor & Francis Journals, vol. 49(50), pages 5144-5165, October.
    17. Helge Bennmarker & Lars Calmfors & Anna Seim, 2014. "Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-20, December.
    18. Aursland, Thor Andreas & Frankovic, Ivan & Kanik, Birol & Saxegaard, Magnus, 2020. "State-dependent fiscal multipliers in NORA - A DSGE model for fiscal policy analysis in Norway," Economic Modelling, Elsevier, vol. 93(C), pages 321-353.

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