Scandinavian Working Papers in Economics

Lund Papers in Economic History,
Lund University, Department of Economic History

No 143: The Effect of a Massive Wage Push on Income Distribution and Employment. Evidence from the 1920 Eight-Hour Workday Reform in Sweden and Its Aftermath

Erik Bengtsson () and Jakob Molinder ()
Additional contact information
Erik Bengtsson: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Jakob Molinder: Uppsala University, Postal: Department of Economic History, Uppsala University, Box 513, 751 20 Uppsala, Sweden

Abstract: In 1920, the working day in Swedish industry and services was cut from 10 to 8 hours without wages being cut correspondingly. This change resulted in a dramatic wage push, with real wages increasing by about 50 percent in the years from 1919 to the deflation of 1921–22. This paper studies the consequences of this wage push for real wages, unemployment, profits and investments. Since agriculture was not affected by the reform, we compare industry and services with agriculture to separate the effects of the reform from other factors. Furthermore, we distinguish between traded and non-traded sectors. We show that real wage effects were significant but that firms in non-traded industries and services faced more inelastic labour demand and thus could conserve profitability to a higher degree. In traded industries, on the other hand, wages relative to profits increased dramatically, and employers responded by increasing capital intensity, leading to jobless growth in the 1920s but continued low profits. We discuss the implications for the literature on interwar wages and employment, the more general inequality literature and the literature on the ‘Swedish model’.

Keywords: wages; wage push; unemployment; working hours reform; inequality; wage shares; interwar period; Sweden

JEL-codes: N14; N34; N44

40 pages, February 3, 2016

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