92
Karl Ove Moene and Michael Wallerstein
of the union leadership to push the interests
of low-paid union members at the expense of
high-paid union members was dependent on
support from a powerful ally: the national
employers' confederation. Low-wage workers
were not powerful enough in Norway and
Sweden to force the adoption of egalitarian
wage policies on their own. The genius of
Rehn and Meidner was to harness the self-
interest of employers to the egalitarian goals
of the social democrats. Once Swedish
employers came to see the egalitarian wage
policy as an impediment rather than as a
support, wage-setting was decentralized and
the policy was defeated. In Norway, centrali-
zed bargaining survives, in part because
Norwegian employers are deeply divided on
whether or not their interests would be bet-
ter served with a Swedish-Style decentralizati-
on. But the Solidaristic component of centra-
lized bargaining has been weakened in
Norway as well.
Conclusion
When Solidaristic bargaining does not raise
the wage far above the market-clearing level,
wage equalization generates an industrial
structure with more investment in modern
plants and more rapid abandonment of older
plants than would otherwise exist. The result
is greater output per worker without reducti-
ons in employment. The relative wage of low
wage workers increases, as does employers'
wealth according to our analysis. In this way,
the unions' pursuit of greater wage equality
found support in employers' pursuit of hig-
her profits. When the scope of wage com-
pression changed in a way that was inimical
to higher profits, employers moved into
opposition and eventually forced the policy's
abandonment.
Notes
1) Cross-national comparisons of wage dispersion
based on data on individual wages are rare. Freeman
(1988) and Rowthorn (1992) present comparisons of
wage differentials among OECD countries using
industry-level wage data. Hogsnes and Veiden (1992)
and Barth and Zweimuller (1992) compare the distri-
bution of earnings in Norway and Austria. Zweimiiller
and Banh (1994) compare the wage structure in 6
OECD countries.
2) Although Rehn and Meidner,s argument was influ-
ential among Swedish policy makers in the early post-
war period, it has been largely neglected in the recent
literature. One exception is Agell and Lommerud
(1993) who make an argument similar to ours with
regard to the movement from agriculture to industry.
See Moene and Wallerstein (1995) for the mathemati-
cal model that underlies the discussion and figures of
this section.
3) The vintage capital model, in which the productivi-
ty of a plant depends on its date of construction, was
introduced in economics by Johansen (1959) and
Salter (1960). Note that our assumption of fixed labor
requirements per plant is not critical. Allowing firms to
choose among production techniques with different
capital-labor ratios does not alter the main argument of
the paper.
4) In order for an equilibrium to exist, we need to assu-
me at least one of the following: (i) a declining demand
curve for the industry's output, (ii) a rising supply cur-
ve for new plants, or (iii) a rising supply curve for wor-
kers.
5) This is sometimes referred to as the Grout effect,
after Grout (1983).
6) Swedish central agreements dropped this restriction
in 1983.
7) The cost of building new plants may set an upper
bound on ɑ that is less than one. In particular, alpha
can only go to one without extinguishing the industry
if the costs of new plants go to zero as the number of
new plants go to zero.
References
Agell, Jonas and Kjell Erik Lommerud. 1993.
Egalitarianism and Growth. Scandinavian Journal of
Economics, 95:559-579.
Baldwin, Peter. 1990. The Politics of Social Solidarity:
Class Bases of the European Welfare State 1875-1975.
Cambridge: Cambridge University Press.
Banh, Erling and Josef Zweimiiller. 1992. Labour
Market Institutions and the Industry Wage
Distribution, Empirica, 19:181-201.