Staying competitive: Challenges for a small open economy

This project studies the adaptation of a small open economy to increased globalization. Challenges include increased trade, offshoring, and immigration. The project considers effects on wages, union membership and on the demand for different types of labor. What are the important determinants of our competitiveness? In the article "Real or ideal competition" Erling Barth and Kalle Moene discuss competitiveness. While ideal competition is about small adjustments, real competition is about discrete choices. Increased competition requires change, R&D and organizational innovations. In small countries, competitive pressure is higher. Features of the Nordic bargaining system with high levels of coordination but also high local union density are key to our competitiveness. Offshoring is part of the ongoing process of globalization. In contrast to many other studies, Marianne Røed, Pål Schøne and Janis Umblijs find in "The Joint Impact of Offshoring and Immigration on Wages: Matched Employer-Employee Evidence from Norway" positive wage effects of offshoring, for both high and low skilled workers, but no significant wage effects of immigration. In the paper "Labour Immigration and Union Strength" Henning Finseraas, Marianne Røed, and Pål Schøne investigate the effects of increased immigration after 2004 on unionization in Norway. Comparing native workers who are differentially protected from immigration, they find labour market effects, but no effects on unionization. Immigrants are overrepresented in certain industries and occupations. Drawing on qualitative data from the hotel and fish processing industries, Arnfinn Midtbøen og Jon Horgen Freeberg show in the paper "Ethnicity as Skill: Immigrant Employment Hierarchies in Norwegian Low-Wage Labour Markets" how different ethnic groups are allocated into specific jobs forming a clear hierarchy in the eyes of employers. Employers tend to assume that immigrants posit (soft) skills particularly suited for specific tasks, and their preferences for particular groups change as new immigrant groups arrive. Their paper "Making of Immigrant Niches in an Affluent Welfare State" explores how immigrant niches emerge. Drawing on extensive case studies they analyze how employers perceive native-born and immigrant workers. The authors develop a model of the formation of immigrant niches and explain how and why such niches emerge in the first place. Henning Finseraas and Johannes Bergh, jointly with Jeremy Ferwarda study in the paper «Voting Rights and Immigrant Incorporation: Evidence from Norway» voting among immigrants. They demonstrate that the timing of voting rights extension plays a key role for political incorporation. Immigrants who received early access were more likely to participate in subsequent elections. In the paper "Union density, productivity, and wages" Erling Barth, Harald Dale-Olsen, and Alex Bryson study the effects of union membership on Norwegian firms. They find that tax subsidies had a positive impact on union membership, and that increases in union density lead to substantial increases in firm productivity and wages. The wage effect is larger in more productive firms. Harald Dale-Olsen studies the impact of regional unionization on regional wage, productivity growth, job creation and job destruction in the paper "Wages, Creative Destruction, and Union Networks". Unions have a positive impact on regional productivity, partly due to the closure of less productive firms, but also from enhanced productivity of survivors and new entrants. The recent oil shock had significant effects on local labour and housing markets. Henning Finseraas, Bjørn Høyland and Martin Søyland study the response of members' (MPs) parliamentary speeches in response to this shock in the paper "Do MPs in Party-Centered Systems Respond to Constituency Economic Shocks? Evidence from Parliamentary Debates in the Norwegian Parliament" The results suggest these MPs became more reluctant to discuss the climate concerns from oil production in the aftermath of the collapse in the oil price. Jointly with Richard Freeman and James Davis, Erling Barth analyses the relationship between establishment specific characteristic and individual earnings. Using US data they find that establishment-level employment, education of coworkers, capital equipment per worker, and R&D intensity affect earnings substantially. Individuals with high pay characteristics are more likely to work in firms with high pay characteristics. In Norway and Britain, easy-to-train workers, high turnover and risky work receive less employer provided sick pay in excess of statutory sick pay. The higher level of sickness absenteeism in Norway compared to Britain is related to the threshold for statutory sick pay in the Norwegian public sick pay legislation. This is dicussed in «The Role of Employer-Provided Sick Pay in Norway and Britain» by Harald Dale-Olsen and Alex Bryson.

The primary objective is to produce high quality research that increases the understanding of how a small open economy adapt and stay competitive, faced with challenges from the financial crises, incraesed immigration, and offshoring, as well as challeng es from a large oil and gas sector. The proposed project consists of three independent, but closely related sub-projects. In the first sub-project we study how productivity, wages and profitability are related to innovation and competition, utilizing v ariation both over time, caused by the financial crisis and the great recession, and induced by globalization. In the second sub-project we investigate how native workers' employment, occupational specialisation and educational investments are affected b y higher immigration and more offshoring. How does stronger integration in the international labour market affects employment and the optimal direction of natives skill formation; both for the individual and for the society? In the third sub-project we i nvestigate how increasing international economic integration influences the welfare state. Greater exposure to international competition might imply a higher level of external risk and income volatility for large segments of the labour force. We want to examine to what degree the exposure to external risk leads to a growing demand for publicly provided social insurance, because voters want to insure themselves against potential income losses due to international competition. One of the main critical R& D challenges in the project is to identify causal relationships. In order to do that we will exploit state of the art methods. The findings from the project should should be of of high relevance, both for the research community and policy makers.