The rise and fall of centralized wage bargaining

Abstract

During the three decades spanning the early 1950s to the early 1980s, the wage-setting process in most Northern European countries was dominated by centralized bargaining (i.e., peak-level labor and employer associations set wages nationwide). In the early 1980s, centralized wage bargaining began to collapse. In this paper, we assess a novel explanation for both the initial establishment of a centralized wage-setting process, and its subsequent collapse. According to our theory, centralized wage bargaining was set up as a response to the spillovers created by the unemployment benefit program. Its collapse was the result of the increase in the productivity gap across workers, brought about by equipment-specific technological progress and equipment-skill complementarity. © The editors of The Scandinavian Journal of Economics 2013.