Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 1999:2: Survey evidence on wage rigidity and unemployment: Sweden in the 1990s

Jonas Agell () and Per Lundborg
Additional contact information
Jonas Agell: IFAU - Office of Labour Market Policy Evaluation, Postal: Labour Market Policy Evaluation, P O Box 513, SE-751 20 Uppsala, Sweden
Per Lundborg: IFAU - Office of Labour Market Policy Evaluation, Postal: Labour Market Policy Evaluation, P O Box 513, SE-751 20 Uppsala, Sweden

Abstract: This study reports the results from a repeat survey among managers in Swedish manufacturing, designed to explore how a severe and prolonged macroeconomic shock affects wage rigidity and unemployment. Our second survey was conducted in 1998, when the unemployment rate was much higher, and the inflation rate much lower, than when we conducted the first survey in 1991. We find no evidence that the increase in unemployment has softened the mechanisms generating wage rigidity. On the contrary, we conclude that - because of severe downward nominal wage rigidity - real wages have become more rigid during Sweden's move to a low-inflation environment. We also report a range of new evidence on underbidding, efficiency wage mechanisms, job security legislation, workers' wage norms, and to what extent the long-term unemployed are subject to statistical discrimination

Keywords: Unemployment; Wage rigidity; Repeat survey; Recession

JEL-codes: E24; J41; J63

36 pages, June 29, 1999

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