The Nordic Model - Embracing globalization and sharing risks

ENDNOTES
1
The modern theory of equilibrium unemployment makes unemployment a function of the
wage claims of unions: there is a mapping from the level of employment to the desired level of
wages, and it is the position of this “wage claim curve” that determines the NAIRU, i.e. the level of
unemployment that is compatible with stable inflation.
2
Calmfors and Driffill (1988).
3
Holden (2005) fledges out the theoretical argument.
4
Hartog and Teulings (1998) present a sophisticated analysis of Dutch pay bargaining from
this perspective, but their analysis fits the Nordic countries’ labour markets equally well.
5
The paper by Baldwin (2006) is an elaboration of this new paradigm of industrial organization.
6
To compensate for this, profit sharing schemes and performance pay schemes have become
increasingly popular among white collar employees.
7
In 2007, the Finnish metal and technology employer associations and some of their wage
earner counterparts broke new ground by concluding agreements that leave a large part of pay
increases to firm-level negotiations.
8
For Sweden, this is reported by Edin, Holmlund and Skans (2007), and for Denmark, by Westergaard-Nielsen
and Tor Eriksson (2007). Similar trends are reported for Finnish white collar employees
by Uusitalo and Vartiainen (2007), although overall salary differentials are lower in Finland.
9
See Uusitalo and Vartiainen (2007).
10
Lönebildningsrapporten 2007, Konjunkturinstitutet november 2007.
11
In general, though, economic theory suggests that the distribution of market pay displays a
higher variance than the distribution of productive abilities. An early demonstration of this was
provided by the celebrated Roy model, see Sattinger (1993).
12
In a study exploiting a large data set of individuals matched with information on the firms
in which the individuals were employed, Per Lundborg (2005) was able show that productivity
(value added per employee) had increased more rapidly in those firms within which intra-occupational
pay dispersion had increased the most. In another study with a similar matched data set,
Fredrik Heyman (2005) showed that profits are enhanced by increased wage dispersion within
the group of highly paid salaried employees.
13
The International Wage Flexibility Project (see Dickens & et al., 2006) compared large data sets
of individual wages for “job stayers” – i.e. individuals who do not change employers – between
two consecutive years. The research strategy was to look for nominal wage rigidity by analysing
the shape of the statistical distribution of individual wage changes in particular countries and
particular years. If the statistical distribution of pay changes contains a lot of observations just
around or above a zero increase, that would be interpreted as evidence for nominal rigidity, because
a large amount of nominal pay cuts would then in all likelihood have been prevented by
some rigidity mechanism. If there were a large concentration of observations just around the rate
of inflation, that would be evidence of real rigidity, since a number of real wage cuts would in all
likelihood have been prevented.
14
There are many reasons for wage rigidity emerging even without any collective regulations.
For example, most wage contracts are written in nominal terms and many are quite long term.
Many workers resist pay cuts, and managers are rightly concerned about the effect of pay cuts on
motivation, morale and hence productivity.
15
See figure 3 in Dickens & et al. (2006). The countries investigated were Ireland, Denmark,
France, Belgium, UK, Switzerland, Austria, Germany, Italy, Netherlands, Finland, Norway, Greece,
Sweden, US, and Portugal. The list ranks them according to increasing nominal wage rigidity.
Norway was not part of the study. The data covered different time periods for different countries,
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