Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 21: Wage Dispersion and Productive Efficiency: Evidence For Sweden

Douglas A. Hibbs Jr. and Håkan Locking
Additional contact information
Douglas A. Hibbs Jr.: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Department of Economics., School of Economics and Commercial Law, Göteborg University, Box 640, SE 40530 GÖTEBORG
Håkan Locking: Department of Management and Economics, Växjö University, Postal: ,

Abstract: The effects of wage dispersion on productive efficiency is a topic rich in theoretical conjecture, a common object of Scandinavian polemical debate and at the same time an issue almost barren of systematic econometric evidence. The Swedish record of enormous compression of relative wages under the institutional regime of centralized solidarity bargaining, followed by substantial de-compression of wages after central bargaining broke down, supplies observations well suited for empirical testing of theories and assertions about the response of productive efficiency to shifts in wage distribution. Results presented in this paper obtained from regression experiments based on distribution-augmented production and labor productivity functions yield no support of 'fairness, morale and cohesiveness' theories implying that wage leveling within workplaces and industries may enhance productivity. We do find substantial evidence, however, that reduction of inter-industry wage differentials contributed positively to aggregate output and productivity growth, most likely for the structural reasons first emphasized by leading Swedish trade union economists almost a half century ago.

Keywords: productivity; wages; distribution

JEL-codes: J23; J31; J51; L16

36 pages, January 24, 2000

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