Summary of “Wage Dispersion and Productive Efficiency: Evidence for Sweden”

1. Introduction

From 1956–1983, the Swedish Trade Union Confederation (abbreviated LO in Swedish) covered and negotiated for basically all blue-collar workers, while the Swedish Federation of Salaried Employees in Industry and Services (PTK) represented white-collar workers. They negotiated with the Swedish Employers Association (SAF). We’ll be focusing on the LO, since their data is more extensive and complete.

2. A Brief History of Postwar Swedish Wage Formation

Broadly speaking, there were 3 phases of wage bargaining.

3. Results

Now we turn to an analysis of the data. Phase 1 policy increased productivity and output by up to 8% and 20% respectively, while phase 2 policy counteracted those productivity gains entirely, and halved the output increase. This is reflected by debates in the LO at the time about the tradeoff between equity and efficiency. This supports the trade union view, and “the regressions yield no support of the thesis… that wage leveling within workplaces enhances productive efficiency”, though the thesis may hold true for less extreme equalization of wages. Once centralized bargaining broke down, productivity and output did not change much overall, as higher inequality between firms and industries decreased output and productivity, while higher inequality within firms increased it.

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