The Nordic Model - Embracing globalization and sharing risks

7
WAGE BARGAINING WITH MORE
FLEXIBILITY
Wages need to be
compatible with macroeconomic
balance
and full employment
There is a case for centralization
or coordination
of bargaining
in highly unionized
economies
Equilibrium unemployment depends, in heavily unionized economies,
on both the demand for labour by employers and the level of
the wage claims of unions. 1 Powerful unions can have significant
effects on wage claims and hence unemployment; they are in a position
to extract wage settlements that disrupt the macroeconomic
balance. It is a constant challenge to enhance or impose wage
moderation in order to keep wage claims at a level compatible with
low unemployment. This is an important point, since some of the
negative consequences of rigid labour market institutions may be
limited if wage demands of unions are sufficiently moderate.
In the late 1980s, co-ordination of wage bargaining became
the subject of a large body of theoretical models, starting with
the well known contribution of Calmfors and Driffill (1988). 2
One conclusion was that centralized pay bargaining is conducive
to high employment and low unemployment in heavily unionized
economies. Nationally coordinated pay settlements are an
advantage because they make it possible to take into account the
negative consequences of high wage claims of individual unions
and to contain union rivalry. This discussion reinforced the legitimacy
of centralized pay bargaining and underlined the challenge
of achieving wage moderation.
Achieving full employment may indeed necessitate some kind
or degree of cooperation between unions. This requirement is
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