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Nordic Economic Policy Review

Globalization, labour market institutions and wage structure

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The Nordic Economic Policy Review is published by the Nordic Council of Ministers and addresses policy issues in a way that is useful for in-formed non-specialists as well as for professional economists. All articles are commissioned from leading professional economists and are subject to peer review prior to publication. The review appears twice a year. It is published electronically on the website of the Nordic Council of Ministers: www.norden.org/en. On that website, you can also order paper copies of the Review (enter the name of the Review in the search field, and you will find all the information you need). Managing Editor: Professor Torben M. Andersen, Department of Economics, University of Aarhus, Denmark. Special Editors for this volume: Research Professor Erling Barth, Institute for Social Research, Oslo, Norway and Professor Kalle O. Moene, Department of Economics, University of Oslo, Norway.

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Why do small open economies have such small wage differentials?

Open economies have more compressed wages than countries that are less exposed to international competition. This association disappears once we control for population and coordination in wage bargaining. Bargaining coordination compresses wages and reduces non-competitive wage differentials. We argue that competition in the world market induces employers and employees in the export industries to search for ways of controlling wages in the sheltered industries. These mechanisms tend to facilitate cooperation and coordination in countries with high exposure to world markets, leading to a more egalitarian wage distribution in small open economies.

English

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