Survey Evidence on Wage Rigidity: Sweden in the 1990s

We present the results from a repeat survey on wage rigidity in a sample of 159 Swedish firms, conducted during a prolonged period of very high unemployment and very low inflation. We document the virtual absence of wage cuts, and trace this pervasive nominal rigidity to a set of interacting factors, including the legal status of the wage contract, the structure of bargaining institutions, and the design of social insurance. But employees’ concerns about fairness and relative wages also appear to play an important role. In addition, we report new results on underbidding, efficiency wage mechanisms, and unemployment persistence.