Working Paper Series
Wage-Setting Institutions as Industrial Policy
() and Steven J. Davis
Abstract: Centralized wage-setting institutions compress relative
wages. Motivated by this fact, we investigate the effects of centralized
wage setting on the industry distribution of employment. We examine
Sweden's industry distribution from 1960 to 1994 and compare it to the U.S.
distribution over the same period. We relate U.S.-Swedish differences in
the industry distribution and their evolution over time to the structure of
relative wages between and within industries. The empirical results
identify the rise and fall of centralized wage-setting arrangements as a
major factor in the evolution of Sweden's industry distribution. The
compression associated with centralized wage-setting shifted the industry
distribution of Swedish employment in three respects: away from industries
with high wage dispersion among workers, away from industries with a high
mean wage, and, most powerfully, away from industries with a low mean wage.
By the middle 1980s, these wage structure effects accounted for about 40
percent of U.S.-Swedish differences in the industry distribution. The
dissolution of Sweden's centralized wage-setting arrangements beginning in
1983 led to widening wage differentials and a reversal in the evolution of
U.S.-Swedish differences in industry structure.
Keywords: Industry distribution of employment; Labor market institutions; Labor market policy; Wage dispersion; Wage-setting institutions; (follow links to similar papers)
JEL-Codes: J23; J51; L50; P52; (follow links to similar papers)
56 pages, February 28, 2000
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- This paper is published as:
Henrekson, Magnus and Steven J. Davis, (2005), 'Wage-Setting Institutions as Industrial Policy', Labour Economics, Vol. 12, No. 3, pages 345-377
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