Wage formation and the macroeconomic function of the Norwegian labour market

The growing rate of unemployment in Norway since the end of the 1980s has increased the demand for knowledge about wage formation and the macroeconomic functioning of the Norwegian labour market. To analyze these questions the most relevant theoretical aspects for labour market and wage formation are discussed, and the understanding of wage formation is enhanced through a comprehensive empirical analysis. The importance of wage formation for the macroeconomic functioning of the labour market and for policy analyses is further evaluated by analyzing the properties of the macroeconometric model MODAG developed in Statistics Norway. A main conclusion is that wages are only weakly influenced by high unemployment, and in the best case the labour market may need several years to restore equilibrium after a negative shock.

Keywords: Econometrics, labour market, macroeconomic model, time series analyses, unemployment, wage formation.

JEL Classification: Cl, El, J2, J3, J5, J6