No. 6/2015:Resource curse avoidance: Governmental intervention and wage formation in the Norwegian petroleum sector

Abstract

A likely channel for Dutch disease turning a presumably blessing resource windfall into a curse, is the wage formation process. By utilizing the shift from decentralized and uncoordinated wage bargaining in the Norwegian petroleum sector to co-ordinated bargaining, this paper analyzes the effectiveness of a governmental intervention aimed at preventing the extraordinary petroleum wage inflation to become detrimental to the economy. The empirical analysis shows that the intervention was successful as insider weights and insider hysteresis effects were effectively reduced, and that the system of coordinated wage bargaining was re-established. The principal conclusion is that institutions and institutional setting play a crucial role in avoiding adverse economic development.