Wage differentials, economic restructuring and the solidaristic wage policy in Sweden

The Swedish model has been seen as way to combine rapid growth with small wage gaps. The solidaristic wage policy negotiated by peak organizations between 1956 and 1983 was designed to induce restructuring by reducing wage differences across the economy. Several authors have linked this to decreased wage dispersion and rapid structural change, especially during the 1960s. However, there is disagreement on when the policy started to affect dispersion and little evidence exist before the 1970s. Using new wage data, I examine differentials using a regression-decomposition framework. The results show that inequality was stable before the late-1960s but declined rapidly thereafter. According to the decomposition, the decline in the 1970s was the likely result of deliberate union policy while developments in the 1960s were unrelated to union action. In contrast to what some authors have argued, this study shows that decreased wage dispersion coincided with a fall in growth and structural change.