Steinar Holden Department of Economics, University of Oslo folk.uio.no/sholden/

1. Discussion of:Labour markets during recessions – evidence on the role of wage rigidity and hysteresisby JuhaKilponen, David Lodge, Rolf Strauch and JuusoVanhala Steinar Holden Department of Economics, University of Oslo http://folk.uio.no/sholden/ Workshop in Sveriges Riksbank 2 September 2010

2. 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 output • Hysteresis and long-term unemployment • Wages and wage rigidity • Employment and output effects

3. 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 issue • Often low statistical significance • Little analysis of heterogeneity and mechanisms

4. Business cycle dating • ”Throughs and peaks – any quarter lower or higher than the preceding and succeeding two quarters”

5. Business cycle dating • ”Throughs and peaks – any quarter lower or higher than the preceding and succeeding two quarters”

6. Unemployment rates Nordic countries

7. Unemployment rates Nordic countries

8. Unemployment rates Nordic countries

9. Unemployment rates Nordic countries

10. Productivitygrowthreducescost – but not this time (?)

15. Wageequation

16. Wageequation • 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) ……….

19. Surprisingthatemployment is not found to affectcompensation – in contrast to most empirical studies

20. ”Compensationshocksloweremploymentgrowth, butregarding output and prices, thedemandeffect from higherwagesseems to prevail and push up both.”

21. Confidence bands in crises

22. 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. “

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

26. “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.”

27. Producer prices - annualgrowth rates

28. Labour compensation– annualgrowth rates

29. Other evidence suggest that downward nominal wage rigidity is weaker(Holden & Wulfsberg, 2010)

33. 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 issue • Often low statistical significance • Little analysis of heterogeneity and mechanisms