Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 1999:2:
Relative wage setting, contracts and unemployment during the deflations of 1920-22 and 1931-34 in Sweden

Klas Fregert ()

Abstract: Recent research on the Great Depression has concluded that a worldwide decline in aggregate demand, emanating from the United States, was propagated into a fall in real activity through sticky nominal wages. The question remains: Why were nominal wages so sticky? I examine two hypotheses based on relative wage setting. Based on a wide range of evidence for Sweden, I argue that the 1920-22 depression is compatible with the staggered wage contract model and the 1930s depression with the co-ordination failure model.

Keywords: Wage contracts; Fischer-Taylor model; unemployment; Sweden; Depression; relative wage setting; (follow links to similar papers)

JEL-Codes: E31; E32; E65; (follow links to similar papers)

43 pages, March 4, 1999, Revised April 21, 1999

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This paper is published as:
Fregert, Klas and Lars Jonung, (2004), 'Deflation dynamics in Sweden: Perceptions, expectations, and adjustmnet during the deflations of 1921-1923 and 1931-1933.' in Burdekin, Richard and Pierre Siklos (eds.) Deflation. Current and historical perspectives., chapter 4, pages 91-130, Cambridge University Press.

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