Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 03/2002: Explaining Variations in Wage Curves: Theory and Evidence

Erling Barth (), Bernt Bratsberg (), Robin A. Naylor () and Oddbjørn Raaum ()
Additional contact information
Erling Barth: Institute for Social Research, Postal: Institute for social research, Munthes gate 31, PO Box 3233 Elisenberg, 0208 Oslo, http://www.samfunnsforskning.no/page/Front_page/Menu_english/7975/1752.html
Bernt Bratsberg: Ragnar Frisch Centre for Economic Research, Postal: Ragnar Frisch Centre for Economic Research, Gaustadalléen 21, N-0349 Oslo, Norway, http://www.frisch.uio.no/main_eng.html, ,
Robin A. Naylor: University of Warwick, Department of Economics, Postal: Department of Economics, University of Warwick, Coventry CV4 7AL - UK, http://www.warwick.ac.uk/
Oddbjørn Raaum: Ragnar Frisch Centre for Economic Research, Postal: Ragnar Frisch Centre for Economic Research, Gaustadalléen 21, N-0349 Oslo, Norway, http://www.frisch.uio.no/main_eng.html

Abstract: This paper presents both theoretical analysis and econometric evidence for the United States, Great Britain and Norway on the extent to which hourly wages of different groups of workers are sensitive to local labour market conditions. We focus on differences by union status. Our theoretical framework captures both a turnover-based efficiency wage mechanism and one originating in union-firm bargaining. Under fairly general conditions, we show that wages are less sensitive to local unemployment the higher is the bargaining power of the union. In accordance with this theoretical prediction, we find that the absolute value of the elasticity of wages with respect to unemployment is higher in the nonunion sector than in the union sector for all three countries. We interpret the evidence as giving support to an efficiency wage interpretation of the wage curve.

Keywords: Wage curves; efficiency wages; bargaining

JEL-codes: J31; J41; J51

59 pages, January 5, 2002

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