2010

Discussion of:

Labour markets during recessions – evidence on the role of wage rigidity and

hysteresisby Juha Kilponen, David Lodge, Rolf Strauch and Juuso Vanhala

Steinar HoldenDepartment of Economics, University of Oslo

http://folk.uio.no/sholden/Workshop in Sveriges Riksbank

2 September 2010

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Research questions

How does the labour market react during financial crises and other downturns?

Are labour market reactions to financial crises systematically different from normal downturns?

Unemployment, employment and outputHysteresis and long-term unemployment

Wages and wage rigidityEmployment and output effects

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Overall evaluation

Lots of interesting charts and empirical analyses

Cover a broad range of important issues Provides a useful overview of labour

market reactions in downturns

Does not ”dig deep” on any specific issueOften low statistical significanceLittle analysis of heterogeneity and mechanisms

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Business cycle dating

”Throughs and peaks – any quarter lower or higher than the preceding and succeeding two quarters”

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Business cycle dating

”Throughs and peaks – any quarter lower or higher than the preceding and succeeding two quarters”

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Unemployment rates Nordic countries

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

2

4

6

8

10

12

14

16

18

FinlandNorwaySweden

2010

Unemployment rates Nordic countries

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

2

4

6

8

10

12

14

16

18

FinlandNorwaySweden

2010

Unemployment rates Nordic countries

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

2

4

6

8

10

12

14

16

18

FinlandNorwaySweden

2010

Unemployment rates Nordic countries

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

2

4

6

8

10

12

14

16

18

FinlandNorwaySweden

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Productivity growth reduces cost – but not this time (?)

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2010

2010

2010

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Wage equation

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Wage equation

No wage share term – in contrast to theory and to a wealth of evidence on time series and panel data

Blanchflower & Oswald (1994), Nymoen & Rødseth (2003), Holden & Nymoen (2002), Forslund, Gottfries & Westermark (2008), Bårdsen & Nymoen (2009) ……….

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Surprising that employment is not found to affect compensation – in contrast to most empirical studies

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”Compensation shocks lower employment growth, but regarding output and prices, the demand effect from higher wages seems to prevail and push up both.”

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• Confidence bands in crises

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• Confidence bands in crises• “The impact on nominal growth rates however exceeds the output

effect. As a result, employment growth drops remarkably and eventually turns negative. “

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• Real compensation (?) and unemployment – two changes at the same time make it hard to interpret the results• How to interpret effect on unemployment?

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“At the same time, note that there are several countries where the real product wage had fallen below 2008Q1 level already prior to 2009Q1. This is in contrast to the ERM II crisis, where the real wage shows far more inertia. In fact, the real wage shows a countercyclical pattern in the large majority of the countries during the ERM II crisis. This leads us to conjecture that nominal wage inertia is less prevalent during the current crisis.”

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Producer prices - annual growth rates

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010q2

-6

-4

-2

0

2

4

6

8

10

United States 1EU27 total 2OECD total

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Labour compensation – annual growth rates

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

1

2

3

4

5

6

7

8

United StatesEU27 totalOECD totalEuro area

2010Other evidence suggest that downward nominal wage rigidity is weaker

(Holden & Wulfsberg, 2010)

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Summing up

Lots of interesting charts and empirical analyses

Cover a broad range of important issues Provides a useful overview of labour

market reactions in downturns

Does not ”dig deep” on any specific issueOften low statistical significanceLittle analysis of heterogeneity and mechanisms

2010