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The Effect of a Massive Wage Push on Income Distribution and Employment. Evidence from the 1920 Eight-Hour Workday Reform in Sweden and Its Aftermath

Bengtsson, Erik LU and Molinder, Jakob (2016) In Lund Papers in Economic History. Education and the Labour Market
Abstract
In 1920, the working day in Swedish industry and services was cut from 10 to 8 hours without wages being cut correspondingly. This change resulted in a dramatic wage push, with real wages increasing by about 50 percent in the years from 1919 to the deflation of 1921–22. This paper studies the consequences of this wage push for real wages, unemployment, profits and investments. Since agriculture was not affected by the reform, we compare industry and services with agriculture to separate the effects of the reform from other factors. Furthermore, we distinguish between traded and non-traded sectors. We show that real wage effects were significant but that firms in non-traded industries and services faced more inelastic labour demand and thus... (More)
In 1920, the working day in Swedish industry and services was cut from 10 to 8 hours without wages being cut correspondingly. This change resulted in a dramatic wage push, with real wages increasing by about 50 percent in the years from 1919 to the deflation of 1921–22. This paper studies the consequences of this wage push for real wages, unemployment, profits and investments. Since agriculture was not affected by the reform, we compare industry and services with agriculture to separate the effects of the reform from other factors. Furthermore, we distinguish between traded and non-traded sectors. We show that real wage effects were significant but that firms in non-traded industries and services faced more inelastic labour demand and thus could conserve profitability to a higher degree. In traded industries, on the other hand, wages relative to profits increased dramatically, and employers responded by increasing capital intensity, leading to jobless growth in the 1920s but continued low profits. We discuss the implications for the literature on interwar wages and employment, the more general inequality literature and the literature on the ‘Swedish model’. (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
wages, wage push, unemployment, working hours reform, inequality, wage shares, interwar period, Sweden
in
Lund Papers in Economic History. Education and the Labour Market
issue
143
pages
36 pages
publisher
Department of Economic History, Lund University
language
English
LU publication?
yes
id
6a9f103b-e59c-45e0-9f71-fa4a6f881714 (old id 8596259)
date added to LUP
2016-02-03 13:16:15
date last changed
2016-04-16 10:31:02
@misc{6a9f103b-e59c-45e0-9f71-fa4a6f881714,
  abstract     = {In 1920, the working day in Swedish industry and services was cut from 10 to 8 hours without wages being cut correspondingly. This change resulted in a dramatic wage push, with real wages increasing by about 50 percent in the years from 1919 to the deflation of 1921–22. This paper studies the consequences of this wage push for real wages, unemployment, profits and investments. Since agriculture was not affected by the reform, we compare industry and services with agriculture to separate the effects of the reform from other factors. Furthermore, we distinguish between traded and non-traded sectors. We show that real wage effects were significant but that firms in non-traded industries and services faced more inelastic labour demand and thus could conserve profitability to a higher degree. In traded industries, on the other hand, wages relative to profits increased dramatically, and employers responded by increasing capital intensity, leading to jobless growth in the 1920s but continued low profits. We discuss the implications for the literature on interwar wages and employment, the more general inequality literature and the literature on the ‘Swedish model’.},
  author       = {Bengtsson, Erik and Molinder, Jakob},
  keyword      = {wages,wage push,unemployment,working hours reform,inequality,wage shares,interwar period,Sweden},
  language     = {eng},
  note         = {Working Paper},
  number       = {143},
  pages        = {36},
  publisher    = {Department of Economic History, Lund University},
  series       = {Lund Papers in Economic History. Education and the Labour Market},
  title        = {The Effect of a Massive Wage Push on Income Distribution and Employment. Evidence from the 1920 Eight-Hour Workday Reform in Sweden and Its Aftermath},
  year         = {2016},
}