Abstract:
The Nordic countries score high on most measures of economic and social performance. Centralised bargaining giving a compressed wage structure across firms has been proposed as a key source to this success. A paper by Douglas Hibbs and Håkan Locking from 2000 seems to be the only empirical investigation of this link and it provides results which support the theory. However, those results do not pass some key robustness checks. First, a test for weak instruments cannot reject that the instrumentation in one specification is too weak. Second, a test for a stable long term relationship cannot reject that the variables do not cointegrate. These findings point to caution when using the conclusions of Hibbs and Locking as empirical support of a link between inter-firm wage compression and positive economic outcomes. It is not in any way, however, evidence against the validity of such a theory.