Real and Nominal Wage Adjustment in Open Economies

41 Pages Posted: 16 Feb 2006  

Anders Forslund

IFAU - Institute for Labour Market Policy Evaluation; Uppsala University

Nils Gottfries

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Andreas Westermark

Sveriges Riksbank

Date Written: January 2006

Abstract

How are wages set in an open economy? What role is played by demand pressure, international competition, and structural factors in the labour market? How important is nominal wage rigidity and exchange rate policy for the evolution of real wages and competitiveness? To answer these questions, we formulate a theoretical model of wage bargaining in an open economy and use it to derive a simple wage equation where all parameters have clear economic interpretations. We estimate the wage equation on data for aggregate manufacturing wages in Denmark, Finland, Norway, and Sweden from the mid 1960s to the mid 1990s.

Keywords: wage formation, efficiency wage, turnover, bargaining, rent sharing, nominal wage rigidity, exchange rate policy, competitiveness

JEL Classification: E52, F33, F41, J31, J51, J63, J64

Suggested Citation

Forslund, Anders and Gottfries, Nils and Westermark, Andreas, Real and Nominal Wage Adjustment in Open Economies (January 2006). CESifo Working Paper Series No. 1649. Available at SSRN: https://ssrn.com/abstract=884362

Anders Forslund

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden
018 471 70 76 (Phone)

Uppsala University ( email )

Uppsala, SE-751 20
Sweden

Nils Gottfries (Contact Author)

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 2304 (Phone)
+46 18 471 1478 (Fax)

HOME PAGE: http://www.nek.uu.se/faculty/gottfries/index.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andreas Westermark

Sveriges Riksbank ( email )

Brunkebergstorg 11
Stockholm, 10337
Sweden

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