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

Author

Listed:
  • Luca Zamparelli

    (Department of Economic Theory, Sapienza University of Rome)

  • Francesco Vona

    (Department of Public Economics, Sapienza University of Rome)

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 of low 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.

Suggested Citation

  • Luca Zamparelli & Francesco Vona, 2010. "Centralized Wage Setting and Labor Market Policies: the Nordic Model Case," Working Papers CELEG 1005, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:celegw:1005
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Centralized wage setting; structural change; labor market policy; frictional unemployment;
    All these keywords.

    JEL classification:

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

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