Wage coordination plays an important role in macroeconomic stabilization. Pattern wage bargaining systems have been common in Europe, but in different forms, and with different degrees of success in terms of actual coordination reached. We focus on wage formation in Norway, a small open economy, where it is custom to regard the manufacturing industry as the wage leader. We estimate a model of wage formation in manufacturing and in two other sectors. Deciding cointegration rank is an important step in the analysis, economically as well statistically. In combination with simultaneous equation modelling, the cointegration analysis provides evidence that collective wage negotiations in manufacturing have defined wage norms for the rest of the economy over the period 1980(1)–2014(4).

Declining unionization rates and job polarization are two important labor market developments of recent decades. A large body of literature has analysed these phenomena separately, but little has been done to see whether there is a link between them. We employ a macroeconomic model for a small open economy with a large input-output core to analyse how deunionization may cause job polarization. Our analysis shows that medium-skilled workers are negatively affected by deunionization, mainly as a result of the heterogeneity of the elasticities of substitution between different types of labor. While the elasticities of substitution between highand medium-skilled labor are relatively low, the elasticities of substitution between medium-and low-skilled are relatively high. As a result, when deunionization leads to increased wage dispersion, we find that demand for low-skilled increases at the expense of medium-skilled labor, thus yielding a more polarised labor market. We would like to thank Pål Boug, Ådne Cappelen, Håvard Hungnes and Ingrid Bjartveit Krüger for inspiration and discussions, to Roger Hammersland for technical support in designing an automatic procedure for estimating the system of cost share equations and to Jørgen Ouren for carrying out the calculations. We also benefited from discussions during a presentation at

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