The Norwegian model for wage settlements : theoretical analysis and illustrations

Abstract

This study has examined the research question; How can The Norwegian model for wage settlements be improved using insight from the Ricardo-Viner and Heckscher-Ohlin models? by formulating hypotheses and illustrating these with data collected from Statistics Norway (Statistisk sentralbyrå) and the central bank of Norway (Norges Bank). Literature on the Norwegian model and international trade has existed for a long time, but we have not found research that applies these theories to the Norwegian model. The current literature on international trade models has been reviewed and applied to discuss the findings of this thesis. Supplementing theory from international trade with knowledge of partial and general equilibria, traded and non-traded sector and intertemporal trade allowed for additional understanding of the findings. The findings of this study reveal that there has been a divergence in the capital return and product prices of traded and non-traded goods and that employment in the non-traded sector has more than doubled over the last 50 years, while the employment in the traded sector has been halved during the same time period. This has occurred despite the fact that the two sectors have mostly experienced the same percentage wage growth. The theoretical analysis revealed that there has been a problem that the Norwegian model delays capital transfers and structural change based on the historical development in Norway. If the development were to change, the biggest problem is that there exists conflicting interests between the short-term and long-term effects. Our recommendation is to keep most of the features from the existing Norwegian model, but that the basis for wage settlements should be expanded. The concern is that the unions in the manufacturing industry constitute a too narrow basis to determine the wage growth for the rest of the economy. The current emphasis on the unions in the manufacturing industry has led to the Norwegian model relying heavily on a partial equilibrium perception. However, as our results have shown, a general equilibrium perception of wage settlements is superior. Taking the Norwegian economy as a whole into account in the Norwegian model should therefore lead to a valuable improvement of the model.