The Nordic Model - Embracing globalization and sharing risks

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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, Wage bargaining with more flexibility · 131
mostly in the years 1980–2000. For Sweden the years 1995–2003 were covered. Thus, the Swedish bargaining reforms starting in the late 1990s may not be fully reflected in the results. 16 We do not want to paint an all black picture, and other studies on wage flexibility yield more nuanced results on Finland and Sweden. Holden and Wulfsberg (2007) compare the distributions of average wage changes over sectors in particular countries and particular years. Their research strategy is based on the dynamics of average wages in a large number of industries and a large number of countries. It thus provides another statistical look at wage rigidity/flexibility. For example, an important channel of wage flexibility may work through new recruits and job changes, something that may not be captured by the analysis of individual job stayers. Interestingly, the Nordic countries do not stand out as particularly rigid in this analysis. In the light of Finnish experiences, this discrepancy between the International Wage Flexibility Project and the Holden – Wulfsberg results makes some sense. Finland experienced a dramatic structural transformation from the mid-1990s onwards, with high productivity growth and big flows of individuals between firms and establishments. Thus, although pay cuts of incumbents were not frequent, average wage costs in industry exhibited a fair amount of flexibility. 132 · The Nordic Model
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The Nordic Model Embracing globaliz
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ETLA B232 ISBN 978-951-628-468-5 IS
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THE AUTHORS Torben M. Andersen is P
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CONTENTS PREFACE THE AUTHORS 1 INTR
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8.5 The future of public services -
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Globalization is primarily an oppor
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ices financed by taxes, which are h
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14, respectively, out of a total of
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are the effects of technical change
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- and, particularly, their effect o
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not contesting economic growth as t
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1.6 AN EFFECTIVE WAGE BARGAINING PR
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etter be tried in individual cases
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The scheme of the social contract c
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is worthy and realistic. But the de
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supportive interaction of openness
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The financial deregulations in the
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horizontal axis). These indices are
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does can nowadays be seen, in a bro
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employment increases in the public
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are not at the top of the league, t
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ENDNOTES 1 Wikipedia refers to popu
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consider employment and productivit
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from the mid-1980s. Finland has gra
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% 7 6 5 4 3 2 1 0 IT expenditure, %
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As technological change is to a sig
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3.3 SOCIAL EQUALITY Economic effici
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0.9 0.8 0.7 Net Fin Den 0.9 Composi
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ANNEX: GROWTH ACCOUNTING The Nordic
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sources of GDP growth in the EU15,
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11 These decompositions have been c
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4.1 THE WELFARE STATE AS A SOCIAL C
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The extent, coverage and quality of
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% % 80 80 60 60 40 20 0 OECD max Fi
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% 80 Total Old age % 80 60 60 40 40
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tem is seriously affected. Today, t
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Historically, however, the share of
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More children. Since the problem is
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Actually higher growth may make the
Page 81 and 82: dependency ratio driven by the baby
Page 83 and 84: 82 · The Nordic Model
Page 85 and 86: to handle much bigger fields today,
Page 87 and 88: Table 5.1 Projections of public hea
Page 89 and 90: 5.4 AN EASY FIX - BRING SERVICES BA
Page 91 and 92: Box 5.1 Growth and the welfare stat
Page 93 and 94: it implies that the long-run defici
Page 95 and 96: The level of taxation is already hi
Page 97 and 98: One may ask why this problem arises
Page 99 and 100: globalization may contribute to bot
Page 101 and 102: able to pay to seek private solutio
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Page 105 and 106: ily policies that Nordic demographi
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Page 109 and 110: in the participation decision of th
Page 111 and 112: Table 6.2 The activity rate, aggreg
Page 113 and 114: Thus, responsible unions should res
Page 115 and 116: als take part in various unemployme
Page 117 and 118: Box 6.2 What is the Danish “flexi
Page 119 and 120: ENDNOTES 1 In his history of the ec
Page 121 and 122: particularly noteworthy in a euro a
Page 123 and 124: 7.2 COORDINATION AND DECENTRALIZATI
Page 125 and 126: also depends on the business cycle.
Page 127 and 128: ut not in any dramatic way (cf. fig
Page 129 and 130: displays higher nominal rigidity th
Page 131: model stem from an age in which the
Page 135 and 136: Table 8.1 Government expenditure by
Page 137 and 138: ure. This selection bias alone will
Page 139 and 140: that everyone gets their worth as m
Page 141 and 142: 8.3 THE CASE FOR GOVERNMENT PROVIDE
Page 143 and 144: maximizing firms tend to focus exce
Page 145 and 146: than zero based budgeting) are impe
Page 147 and 148: sectors, place at or above the medi
Page 149 and 150: The demands for objectivity limit w
Page 151 and 152: assessed case by case. The importan
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Page 155 and 156: mechanically in the political debat
Page 157 and 158: ENDNOTES 1 The private sector inclu
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Page 161 and 162: ment has a higher return when spent
Page 163 and 164: REFERENCES Adema, W. and Ladaique,
Page 165 and 166: Jonung, L. and Hagberg, T. (2005):
Page 167: Is there a Nordic model? What are t
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