Wage contracts in the most important areas cover a three-year period. According to the prevailing procedure, the industry has served as the trendsetter, i.e. has made the first agreement and has set the “bar” that has then been followed in other contracts. How does the current wage contract system work in a “historical” perspective?
WAGE CONTRACTS in the most important areas cover a three-year period. According to the prevailing procedure, the industry has served as the trendsetter, i.e. has made the first agreement and has set the “bar” that has then been followed in other contracts. How does the current wage contract system work in a “historical” perspective? How should the outcome in the 2013 wage negotiations be considered? What can economic research say about the effects of different kinds of trend setting? Does the industry have to come first with contracts or can someone else set the bar? At the same time, it seems that an increasing number of contracts do not contain any numbers, which means that the wage increases are determined in local negotiations. What do these contracts mean for the trend setting?
THE WAGE CONTRACT SYSTEM works a lot better today that in the past. Wage contracts do no longer create any economic frictions. But more restrictive wage increases in relation to price and productivity increases and larger wage differences at the bottom could contribute considerably more to reduce unemployment. The contracts from 2013 do not serve to deteriorate the state of the business cycle, but they do not contribute to lower unemployment either.
THE TRENDSETTING ROLE OF THE EXPORT INDUSTRY has become a tradition, but there is probably too much confidence in its effects. The system works and is legitimate. But as long as the low-inflation policy of the Riksbank is credible, it would probably also work to have other trend setters. There is no need for possible changes in the system to raise any concern.
CONTRACTS WITHOUT NUMBERS do most likely not make the trendsetting more difficult. In contrast, these do most likely build on there actually being an existing trend setter to be taken as the starting point. But if such contracts are automatically used by contract areas that want to put themselves above the trend, the current system with the industry as the trend setter will be subject to considerable pressure.
AUTHOR Lars Calmfors is Professor of International Economics at the Institute for International Economic Studies, Stockholm University. E-mail: Lars.Calmfors@iies.su.se.