ABSTRACT
This chapter addresses regional labor market adjustment in Norway. Norwegian wage bargaining has been highly centralized, and regional wages have been less responsive to regional than to national labor market tightness indicators. Mobile workers might respond to unfavorable local labor market conditions by seeking employment outside their region of residence, thereby contributing towards reducing regional employment differentials. The chapter applies the Blanchard and Katz framework to Norway and extends it through inclusion of a control variable for the distance from the demographic center of each region to Oslo. Blanchard and Katz found labor demand shocks to cause transitory changes in relative unemployment and wages across US states. In Norwegian regional labor markets, negative labor demand shocks result in a sharp and persistent decline in the work-force participation rate. Norway and some other North European countries that experience relatively high internal labor mobility tend to have both high real wage levels and generous welfare systems.
