Wage Leadership in Norway and Sweden: The Origins and Social Coalitions of the ‘Scandinavian Model of Inflation'

In the Scandinavian countries, the export-oriented manufacturing sector acts as the wage leader for the entire economy, setting the pace for wage increases. This model is celebrated among economists (Calmfors and Driffill, Traxler et al) as well as  by policy professionals, as highlighted by a recent Norwegian public investigation (2013) as well as by Swedish Mediation Institute’s latest report (2014). Economists and industrial relations experts typically stress that export-sector wage leadership is conducive to a combination of wage restraint and egalitarian wage policy which is favourable for low inflation, low unemployment and low inequality. However, the model privileges manufacturing in wage setting and is thus highly controversial especially among public sector and private service sector unions who have loudly protested the model in recent years. Typically, female-dominated service sector unions criticize the wage leadership model for conserving unjust wage differentials, while radical unions criticize the model for giving preference to conservative wage policies with low wage increases.  

Wage leadership – sometimes referred to as “the Scandinavian Model of  Inflation” – is thus both a celebrated and controversial institution. But still we know very little about its history and development; Due and Madsen say in their textbook on Danish industrial relations that engineering “always” has been the wage leader, while in the Swedish EFO Report of 1970, often claimed as the source of manufacturing wage leadership in Sweden, it is said that “the adult male manufacturing worker has for a long time been the benchmark for Swedish income development”. “Always”, “for a long time”: as we see the literature is very imprecise on the history of this institution. As Traxler and Brandl (2008) have said, wage leadership is “both an under-researched and controversial subject”. Furthermore, from an institutionalist viewpoint (Thelen 2014) it is a highly interesting subject since it favours the export-oriented sector over the home market sector, which should make it controversial (cf. Swenson 2002), but still appears to have been fairly stable over the last eighty years or so. At least it seems (Frøland 1998) that wage leadership first appeared in Scandinavia during the crisis of the 1930s. Wage leadership as an institution is thus interesting also for the wider debate on institutions in the political economy, on how institutions are created, upheld and replaced.

For these reasons, this paper contributes the first historical and institutionalist analysis of wage leadership in Scandinavia, focusing on Norway and Sweden in the period from the model’s first appearance in the 1930s to its consolidation in the late 1960s with the EFO model in Sweden and the Aukrust model in Norway. The paper contributes with new historical knowledge about wage leadership, as well as with new theoretical input to the institutional analysis of wage setting. Given recent historical-institutional advances in analyzing the importance of social coalitions in creating and upholding institutions (Kume and Thelen 2006, Palier and Thelen 2010, Thelen 2014), the paper focuses on the social coaliations that created, upheld and transformed wage leadership in the two countries. The paper asks questions such as: How could a model privileging one economic sector over the others be established? How did the context of the economic crisis of the 1930s affect institutional innovation in the wage bargaining area? Did the crisis affect the possible coalitions, and if so, did the end of the crisis change the possibilities of this coalition? Did manufacturing unions and employers unite easily on this aim? Which actors from other sectors (or even from within manufacturing) opposed the wage leadership of export-oriented manufacturing at different times? Which factors seem to have determined whether proponents or opponents of export-oriented wage leadership were successful at different points of time? The paper thus specifically aims at contributing to the debate on social coalitions and institutions, also in the context of an economic crisis, but here the Great Depression of the 1930s rather than the Great Recession.