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Sticky Swedes and flexible Finns: manufacturing labour markets in Finland and Sweden during the Great Depression

Journal article
Authors S. Heikkinen
Christer Lundh
Published in Scandinavian Economic History Review
Volume 68
Issue 2
Pages 145-169
ISSN 0358-5522
Publication year 2020
Published at Department of Economy and Society, Economic History
Pages 145-169
Language en
Links dx.doi.org/10.1080/03585522.2020.17...
Keywords collective bargaining, labour market institutions, nominal wage stickiness, response to economic crises, The Great Depression
Subject categories Economic History

Abstract

Nominal wage stickiness is a popular explanation for the greatness of the Great Depression. According to the sticky-wage explanation, the slow adjustment of nominal wages raised real wages above the market-clearing level, causing a reduction of output and labour, thus increasing unemployment. Explanations for nominal wage stickiness are usually sought within the labour-market institutions and their changes after the First World War. This paper examines the role of labour-market institutions by comparing manufacturing labour markets in Finland and Sweden. These two countries had quite similar economic structures, trade patterns, and exchange rate policies, but different systems of industrial relations. Results indicate that stronger trade unions and collective bargaining made nominal wages stickier in Sweden, while in Finland, where collective agreements did not exist, unions were weaker, and wage adjustment was more flexible. As a result, real product wages rose in Sweden but fell in Finland. This created in Sweden stronger pressure for reducing labour input than in Finland. Our results show on one hand that labour market institutions clearly influenced the course of the Great Depression, but on the other hand that they alone do not explain the different economic outcomes during the depression and the recovery. © 2020, © 2020 The Scandinavian Society of Economic and Social History.

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