Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms

An interview survey was designed to explore how personnel managers and senior wage negotiators respond to popular models of the labor market. As in Blinder and Choi (1990), our results indicate that relative wages and notions of fairness are important, and that this may explain nominal wage rigidity. We find much evidence of efficiency wage mechanisms. The reactions to some questions also point to theories based on rent-sharing. Moreover, while underbidding is not that uncommon, firms seem quite unwilling to hire underbidders. We also obtain indications of adverse selection problems.