Asbjorn Rodseth

Explaining unemployment: some lessons from Nordic wage formation

Abstract Because they seemed to yield low unemployment, Nordic wage setting mechanisms and labor market policies were, in the 1980s, seen by many as examples to follow. Others ascribed the good performance to conditions on the demand side. Exploiting data also from the 1990s, we take a new look at this debate. Claims that unemployment was low because of high real wage flexibility or active labor market policy are not supported. Nor does it seem that the increase in unemployment around 1990 was caused by shifts in the wage curves. Aggregate demand explanations are not invalidated.

Engel curves and systems of demand functions

Abstract The functional forms of the Engel curves implied by several popular complete systems of demand functions are discussed. Among the systems are those generated by generalized quadratic indirect utility (the translog system, the generalized Leontief system, etc.), the linear and quadratic expenditure systems, and Deaton and Muellbauers PIGL and AIDS. A new system, which can produce the Engel curves of all these systems as special cases, is suggested. The different Engel curves are tested against data from a Norwegian survey of consumer expenditure. This is done both in a complete system of Engel curves for eight commodities and commodity by commodity.

Exchange Rate versus Price Level Targets and Output Stability

Two alternative targets for monetary policy are considered: stability of the price level (or the rate of inflation) and stability of the exchange rate. The interest rate is the main instrument of the central bank. Credibility requires low output variability. The advantages of the alternative policy rules from the point of view of output stability are considered in the simplest possible model. Conditions favoring a price level rule are high volatility of aggregate demand, low volatility of aggregate supply, high volatility of the foreign price level, a low price elasticity of aggregate demand, and a high price elasticity of aggregate supply. Copyright 1996 by The editors of the Scandinavian Journal of Economics.

Are Employment Policies Counterproductive When Wage Setting Is Centralized

When government policy is subjected to a balanced budget constraint or a current account constraint, total income of the workers is independent of the employment policy. An employment policy distributes income more evenly, and may lead to a union with strong preferences for equality to raise its wage. However, a sufficiently vigorous employment policy is always effective. Unions which maximise the after tax real wage is always lower the nominal wage when government employment policy becomes more vigorous. The constraints enforce an implicit tax-based incomes policy (TIP), and there is limited scope due to centralisation for other forms of TIP.

Progressive taxes and automatic stabilization in an open economy

Abstract In a simple model with a fixed exchange rate, more progressive taxes are likely to lead to a fall in the multiplier for autonomous expenditure. The effect on the multiplier for an autonomous wage shock may go either way, and increased progressivity may change the sign of this multiplier. The wage bargaining is modeled as a trade-off between employment and real disposable income. Depending on them weight attached to employment and the way expectations are formed, more progressivity may contribute to stabilize rather than destabilize this wage formation process. Indexation of taxes to imported inflation seems preferable to alternatives.