WAGES, PRICES AND POLITICS - EVIDENCE FROM NORWAY

This paper studies the empirical relevance of the close ties between a central trade union and the social democratic political party using t ime series data for Norway. Using a structural wage-price model we est imate that changing from a bourgeois to a social democratic government reduces manufacturing wages in the long run by 2.3 percent. This resu lt is consistent with a wage bargaining model augmented by political p references of the union leaders. Private service wages are not directl y affected by government type, but wage spillover effects imply that t he long-run dampening effect in the private service sector is around 2 percent. The results also support the proposition of the Scandinavian model of inflation that the traded goods sector is the wage leader.