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

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  • Francesco Vona

    (OFCE Sciences-Po, 69 quai d'Orsay, 75007, France.
    2] SKEMA Business School, 60 rue Dostoievski, 06902, Sophia-Antipolis, France.
    SKEMA Business School, 60 rue Dostoievski, 06902, Sophia-Antipolis, France.)

  • Luca Zamparelli

    (Department of Social Sciences, University of Rome “La Sapienza”, Piazzale A. Moro 5, 00185, Rome, Italy.)

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.

Suggested Citation

  • Francesco Vona & Luca Zamparelli, 2014. "Centralized Wage Setting and Active Labor Market Policies in Frictional Labor Markets: The Nordic Case," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 40(3), pages 349-364, June.
    • Handle: RePEc:pal:easeco:v:40:y:2014:i:3:p:349-364
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    More about this item

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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