Pranab Bardhan interviews the Norwegian economist, Karl Ove Moene:
Pranab Bardhan (PB):1. It is well-known that in most global rankings by various socio-economic indicators the Nordic countries (Norway, Sweden, Denmark, Finland and Iceland) usually come up often at the very top. In order to understand the structural reasons behind this sustained good performance of Nordic countries I have found your articles over the years very useful. People associate the Nordic countries with high taxes funding a generous welfare state and relative equality in the capital-labor relation, but they do not pay enough attention to another feature of equality that you have emphasized, that of wage equality among different workers and firms. In fact you have referred to this compression in wage structure as an important factor in preserving the dynamism of capitalism in Nordic countries in terms of innovations. If I understand you correctly, the compression results in relatively low wages facing high-productivity firms and industries comparable to those faced by their low-productivity counterparts, and this brings high profitability for the former, and thus stimulates innovations and investments in new technology. Would you briefly explain for the general reader the history of this institutional practice in Nordic countries and its operation today? Also, how is it sustained in these countries, whereas in others, say US or UK, such compression of the salaries of high-skilled workers and managers would have induced large-scale emigration?
Kalle Moene (KM): In Scandinavia, wage equality arose as adjustments to fierce international competition in output markets, starting already when social democrats came to power in the 1930s. In Sweden and Norway coordinated wage bargaining emerged from a union vs. union dispute over the bargaining system. When foreign demand collapsed during the world crisis, workers in the export sectors, particularly the metal workers, had to take large wage cuts to keep their jobs.
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