Wages, Prices and Politics: Evidence from Norway
| Author | Kåre Johansen,Bjarne Strøm |
| DOI | http://doi.org/10.1111/1468-0084.00080 |
| Published date | 01 November 1997 |
| Date | 01 November 1997 |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 59, 4 (1997)
0305-9049
WAGES, PRICES AND POLITICS:
EVIDENCE FROM NORWAY*
K˚are Johansen and Bjarne Strøm
I. INTRODUCTION
Are Norwegian wages affected by changing from a Social Democratic
(SD) to a bourgeois central government? This is one of the main ques-
tions in the present paper which offers a structural model of wage and
price formation, taking possible effects of the political and institutional
environment into account.
An important feature of Norway and other countries with a centralized
bargaining system is the close ties between the trade union movement
and the SD parties (Rødseth and Holden, 1990, p. 238). Yet, the possible
implications of this relationship has largely been neglected by econo-
mists.1While economists working with wage bargaining models have
usually focused on the ability of centralized bargaining institutions to
internalize externalities in decentralized wage setting, cf. Calmfors and
Driffill (1988), political scientists have emphasized that the benefits from
centralized bargaining will only occur under certain political
circumstances.
Lange and Garrett (1985), Garrett and Lange (1986) and Alvarez,
Garrett and Lange (1991) argue that an encompassing trade union will
moderate wage demands (internalize the externalities) only to the extent
that the trade union members will get a share of the increase in the ‘cake’
(future economic growth) induced by this moderation. The trade union
movement and SD parties are assumed to have common ideological
goals, and the union will have more confidence that a SD government will
implement such a redistribution policy, cf. Detken and G¨artner (1992,
1993). As to the relevance of this story to Norway one objection is that
the ideology of the bigger political parties seems quite similar and have
approached each other through time. However, there is a number of
examples that people are union bosses one day and ministers in a SD
*Comments from an anonymous referee, Eilev Jansen, Oddbjørn Raaum and seminar
participants in Trondheim are gratefully acknowledged. The usual disclaimer applies. All
numerical results were obtained using PcFiml 8.10 and PcGive 8.10; see Doornik and Hendry
(1994a, 1994b).
1Exceptions are Moene et al. (1993) and Detken and G¨artner (1992, 1993).
511
© Blackwell Publishers Ltd, 1997. Published by Blackwell Publishers, 108 Cowley Road, Oxford
OX4 1JF, UK & 350 Main Street, Malden, MA 02148, USA.
To continue reading
Request your trial