Centralised wage bargaining and structural change in Sweden

Abstract

There is a general consensus among scholars that centralised wage bargaining played a key role in the ability of Sweden to maintain wage moderation in the early post-World War II period. Conventional wisdom suggests that it worked through one of two mechanisms: internalisation of the negative externalities associated with excessive wage settlements or implicit contracts that favoured cooperation between capital and labour over conflict. We contend, instead, that centralised wage bargaining was introduced because Swedish firms and unions adopted the Rehn-Meidner plan. In this environment, centralised wage bargaining was used to facilitate wage compression from below and promote labour release. Wage moderation then was a result of shifts in the labour supply. In the final section of the article we argue that excessive wage compression in the 1970s sapped the morale and effort of skilled workers, pushed down productivity and profits and eventually led to the demise of centralised wage determination.