Coordination in Norwegian Wage Setting

Calmfors and Driffill (1988) and others have shown that the degree of coordination in wage setting matters for wage growth, and indicators of coordination, by Kenworthy (2001) and others, show that Norway has a high degree of coordination compared to other countries. The wage relations presented in this thesis include coordination and show that Norwegian wage settlements are characterised by a high degree of coordination. Compared to previous literature, the results in this thesis indicate that error-correction towards the equilibrium wage share or reference wage is somewhat faster than previously reported. By using Bjørnstad and Skjerpen (2006) as a reference point, it is shown that the wage relations for five educational groups have changed over time. This may be caused by the transition to inflation targeting in 2001 and the surge of immigration from 2004. There are some differences between wage relations for the educational groups. The group of workers with high university education differs from the other educational groups in several respects. Especially, the results imply that the wages in the top group can deviate from the equilibrium for a longer period of time than the less educated groups. This indicates that wage growth for this group is determined differently than for other groups, and may have implications for the bargaining power of this group. As this group increases relative to the other groups it may have implications for the degree of coordination in Norwegian wage formation. Immigration is found to affect wage growth negatively, implying that the increase in immigration reduces growth in hourly wages. The estimated effects of changes in consumer prices imply that workers are almost fully compensated for changes in inflation. Changes in productivity has a 2,5 times larger estimated effect for the top group than for the middle groups i manufacturing, while workers with primary education seems to have no short term effect of changes in productivity on wage growth. The high degree of coordination is accounted for by including the Norwegian coordination index in the wage relations. Coordination affects hourly wages negatively, and the total effect differs across educational groups. Contrary to the expected outcome, the estimated total effect of error-correction is lower if the degree of coordination is high. This result can be interpreted as a temporary increase in bargaining power in settlements with a higher than average degree of coordinat