Wage Dispersion and Productive Efficiency: Evidence for Sweden

Abstract

forthcoming in -RXUQDO RI /DERU (FRQRPLFV, October 2000 $EVWUDFWThe effects of wage dispersion on productive efficiency is a topic rich in theoretical conjecture, a common object of Scandinavian polemical debate and at the same time an issue almost barren of systematic econometric evidence. The Swedish record of enormous compression of relative wages under the institutional regime of centralized solidarity bargaining, followed by substantial de-compression of wages after central bargaining broke down, supplies observations well suited for empirical testing of theories and assertions about the response of productive efficiency to shifts in wage distribution. Results presented in this paper obtained from regression experiments based on distribution-augmented production and labor productivity functions yield no support of 'fairness, morale and cohesiveness' theories implying that wage leveling within workplaces and industries may enhance productivity. We do find substantial evidence, however, that reduction of inter-industry wage differentials contributed positively to aggregate output and productivity growth, most likely for the structural reasons first emphasized by leading Swedish trade union economists almost a half century ago.

The impact of educational mismatch on firm productivity: Evidence from linked panel data

“…Given the importance of this issue, a growing empirical literature is devoted to analysing the relationship between wage dispersion and firm performance (e.g. Hibbs and Locking, 2000, Heyman, 2005, Martins, 2008. However, the precise impact of wage dispersion on firm performance still remains unclear as both positive and negative impacts are suggested (for a review see Mahy et al (2011a)).…”

Wage Differentials and Their Determinants in US Tourism and Tourism-Associated Industries

“…Chen and Edin (2002) find evidence from Swedish blue collar workers that inter-industry wage differences are consistent with efficiency wage effects. Hibbs and Locking (2000) argue that a series of institutional factors may be an important reason for inter-industry wage differences. A closely related strand in the literature is the empirical analysis of foreign ownership wage premia, such as that presented by Heyman et al (2007).…”

How Wage Compression Affects Job Turnover

“…Centrally negotiated wage levels were more or less binding and often included special low-wage provisions to increase the relative wage of workers at the lower end of the wage distribution. As a result of the egalitarian wage policy, wage dispersion in Sweden, measured as the total variance of blue-collar workers, declined by 75 percent between 1962 and 1983 (Hibbs and Locking, 2000). Hibbs and Locking (2000) noted that the Swedish wage distribution was so compressed that a relative wage increase of around 30 percent would take a worker from the 10 th to the 90 th decile of the wage distribution.…”

“…Furthermore, the egalitarian view of wage setting faded and practically disappeared around 1990. The effect of these changes in the wage-formation process on relative wages was quite dramatic: Between 1983 and 1993, the relative wage dispersion increased by approximately 50 percent (Edin and Holmlund, 1992;Hibbs and Locking, 2000) so the wage dispersion in the early 1990s was about the same as that in the mid-1970s. The trend towards increased wage inequality continued in the 1990s, hand in hand with a more decentralized wage bargaining system.…”