Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation

This paper reviews the development of labour market institutions in Norway, shows how labour market regulation has been related to the macroeconomic development, and presents dynamic econometric models of nominal and real wages. Single equation and multi-equation models are reported. The econometric modelling uses a new data set with historical time series of wages and prices, unemployment and labour productivity. Impulse indicator saturation is used to achieve robust estimation of focus parameters, and the breaks are interpreted in the light of the historical overview. A relatively high degree of constancy of the key parameters of the wage setting equation is documented, over a considerably longer historical time period than earlier studies have done. The evidence is consistent with the view that the evolving system of collective labour market regulation over long periods has delivered a certain necessary level of coordination of wage and price setting. Nevertheless, there is also evidence that global forces have been at work for a long time, in a way that links real wages to productivity trends in the same way as in countries with very different institutions and macroeconomic development