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Centralized wage setting and labor market policies: the nordic case

Vona, Francesco and Zamparelli, Luca (2012): Centralized wage setting and labor market policies: the nordic case. Forthcoming in:

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Abstract

We adopt a standard search and matching model with endogenous job destruction to investigate two issues. First, we use a simplified version of Boeri and Burda (2009) to show that at sufficiently low levels of wage share, centralized wage bargaining performs better than decentralized bargaining in terms of average productivity, unemployment, and income inequality. Second, we incorporate active labor market policies in the model and establish that they are more effective in reducing unemployment when wage setting is centralized. Finally, numerical analysis suggests that the difference in effectiveness is sizeable.

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