Abstract
This paper reviews the development of labour market institutions in Norway, shows how labour market regulation has been related to the macroeconomic development, and presents dynamic econometric models of nominal and real wages. Single equation and multi-equation models are reported. The econometric modelling uses a new data set with historical time series of wages and prices, unemployment and labour productivity. Impulse indicator saturation is used to achieve robust estimation of focus parameters, and the breaks are interpreted in the light of the historical overview. A relatively high degree of constancy of the key parameters of the wage setting equation is documented, over a considerably longer historical time period than earlier studies have done. The evidence is consistent with the view that the evolving system of collective labour market regulation over long periods has delivered a certain necessary level of coordination of wage and price setting. Nevertheless, there is also evidence that global forces have been at work for a long time, in a way that links real wages to productivity trends in the same way as in countries with very different institutions and macroeconomic development.
Highlights
The newspaper article by professor Ragnar Frisch, where the quotation is taken from, continued with the observation that one of the (“lucky”) things that had happened was that “wage policies”Econometrics 2017, 5, 6; doi:10.3390/econometrics5010006 www.mdpi.com/journal/econometricsEconometrics 2017, 5, 6 had come to take a central place in economic policy thinking and practice, alongside monetary and fiscal policy 1
Even the 1970s bad reputation for real wage eroding inflation seems a little exaggerated when we look at this graph: The real wage growth rates did not dip below 50 percent before 1980
We look at how the theoretical model behave when we put in numbers for the parameters and solve the model by dynamic simulation, from a given starting point
Summary
The newspaper article by professor Ragnar Frisch, where the quotation is taken from, continued with the observation that one of the (“lucky”) things that had happened was that “wage policies”. Frisch was clearly looking for a conceptualization, and an operationalization, of a wage norm for the Norwegian economy as a whole He did not give attention to the important developments towards practical collective labour market regulation that had taken place in the early decades of the 20th century. Relevance suffers if the steady state of a medium term macro model is taken as exogenous, as the dynamic stochastic general equilibrium models (DSGEs) do Another implication is that unions and firm owners’ organizations, through, for example, coordinated wage formation, can aid economic policy by making sure that inflation, labour market disputes, low mobility and low productivity growth do not become obstacles for the attainment of other important policy targets like full employment. The results of this investigation support that a much more concerted policy adjustment is required, and that this was well understood during the post-war period, and that even this may not be enough, if the economy is hit by external shocks, or has to correct imbalances that have been allowed to build up over time
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