Vífill Karlsson

Dimensions of the Wage-Unemployment Relationship in the Nordic Countries: Wage Flexibility Without Wage Curves

This paper analyses wage formation in the Nordic countries at the regional level by the use of micro-data. Our results deviate systematically from the main conclusions drawn by Blanchflower and Oswald (1994). We find no stable negative relation between wages and unemployment across regions in the Nordic labor markets once regional fixed effects are accounted for. Wage formation at the regional level is characterized by considerable persistence, but unemployment exerts no immediate influence on wages at the regional level. There is no evidence of a wage curve, nor of a Phillips curve, at the regional level in the Nordic countries. The results are consistent with a theoretical model where central bargaining agents determine a national wage increment, and local bargaining agents determine wage drift.