Missed the starting gun! Wage compression and the rise of the Swedish model in the labour market

A central aspect of the Swedish model was the labour market, distinguished by an egalitarian wage structure and by the particular configuration of two institutions: a centralised wage bargaining that followed upon the Saltsjöbad Agreement in 1938 and the solidaristic wage policy implemented in 1956. The literature argues that these institutions produced an outstanding compression of the wage structure from the late 1960s onwards. In contrast, we argue that this narrow post–World War II focus overlooks the historical dimension of the wage structure. The evidence presented here shows that a compression of the wage structure occurred in the late 1930s and 1940s. Previous research attributes this early episode of compression to market factors. In public investigations and periodicals of the 1940s, however, contemporary observers reckoned that special agreements between SAF and LO during World War II caused wage convergence. These agreements anticipated the solidaristic wage policy of the 1950s. We subject the market-factor view to a statistical test and show its explanatory insufficiency. We thereby corroborate the contemporaries’ view and conclude that the coexistence of the centralised agreements, the solidaristic wage policy, and wage convergence configured the rise of the Swedish model during World War II.