No. 1/2006
POLITICS IN WAGE SETTING: DOES GOVERNMENT COLOUR
MATTER?
Kåre Johansen
Ørjan Mydland
Bjarne Strøm
Abstract:
This paper studies the relationship between wage formation and the
political colour of the
government in an economy with centralized wage bargaining. Ideological,
organizational
and personal ties between the central trade union and the social democratic
political party
suggest that the trade union may behave significantly different in wage
negotiations
under a social democratic than under a conservative government. Using
time series data
for Norway, we estimate that changing from a conservative to a social
democratic central
government significantly reduces manufacturing wages and makes wages
more
responsive to unemployment. This result is consistent with a wage bargaining
model
augmented by political preferences of the union leaders and suggests
that the effect of
bargaining coordination depends on the political colour of the government.
The estimated
effects are both robust with respect to model specification and stable
over time.
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