Wage-Setting Institutions as Industrial Policy

48 Pages Posted: 29 Jun 2007

See all articles by Steven J. Davis

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

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Centralized wage setting arrangements compress wage differentials along many dimensions, but how do they affect employment structure? To address this issue, we relate the evolution of U.S.-Swedish differences in the industry distribution of employment to relative wages between and within industries. We find that centralized wage setting shifted Swedish employment away from industries with high wage dispersion among workers, a high mean wage and, especially, a low mean wage. The dissolution of Sweden's centralized wage-setting beginning in 1983 led to widening wage differentials and a reversal in the evolution of U.S.-Swedish differences in industry structure.

Keywords: Centralized wage setting, Industrial Policy, Industry distribution

JEL Classification: J23, J51, L50, P52

Suggested Citation

Davis, Steven J. and Henrekson, Magnus, Wage-Setting Institutions as Industrial Policy. Labour Economics, Vol. 12, No. 3, 2005, Available at SSRN: https://ssrn.com/abstract=996916

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