Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 337: Wage Setting as a Discovery Process - Why local is superior to central even if one is skeptical towards performance based pay

Charlotta Stern ()
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Charlotta Stern: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: Local wage setting is when companies in their collective agreements with unions formulate local rules for determining wage increase criteria, in contrast to central wage setting where the industry agreement specify the rules for all companies covered. HR-managers should promote local wage practices more than they currently do. I identify reasons behind HR-managers (and unions) skepticism towards local wage practices and go on to argue that in the end a local wage practice will be better organizational-practice because it will develop organization specific knowledge and this will promote discovery and develop organizational integrity. Hence, HR-managers should embrace local wage practices because it is good for the organization, although it means more work and higher demands on the managers themselves. The social outcome of local wage practices is that firm-specific explorations in HR-management schemes is HR-intrapreneurship which in combination with competition is likely to foster inter-organizational learning and stronger firms.

Keywords: HR professionals; wage setting; performance pay; collective agreements; local knowledge; intrapreneurship

JEL-codes: J24; J31; J33; J53

16 pages, August 20, 2020

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