Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 149: Wage Flexibility in a Unionized Economy with Stable Wage Dispersion

Iida Häkkinen Skans (), Mikael Carlsson () and Oskar Nordström Skans ()
Additional contact information
Iida Häkkinen Skans: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Mikael Carlsson: Uppsala Center for Labor Studies (UCLS) and the Riksbank
Oskar Nordström Skans: Uppsala University, UCLS and IZA

Abstract: The paper estimates how wages respond to changes in regional unemployment using detailed Swedish micro data. The study is set in an economy with close to complete union coverage where real wages have grown continuously in all parts of the wage distribution for 15 years, and where the aggregate wage dispersion has remained con-stant for the same period. Our results show that this aggregate stability is coupled with non-trivial flexibility in terms of wage adjustments to changes in regional unemploy-ment. These results are particularly strong after the data have been purged from com-positional fluctuations. However, we also document that the industries with least flex-ible collective agreements cover a higher-than-average share of workers with a high risk of job-loss into unemployment. This institutional feature leads to additional wage rigidities for vulnerable workers.

34 pages, September 19, 2017

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