Aukrust model

Article

May 22, 2022

The Aukrust model, also called the main course theory, is an economic model published in 1977 by the Norwegian social economist Odd Aukrust. The model consists of seven equations that describe the relationship between wage growth, prices, productivity, inflation, exchange rates, and closure rates in the competitive (export-oriented) sector in a small, open economy. The model provides an analytical and formal socio-economic argument for how wage negotiations should be organized. has had a great influence in that it has given rise to the Norwegian front-line model. A key prerequisite is that the workforce between the two sectors is mobile, and that wages in the two sectors are therefore the same. If wages are determined in the sheltered sector, which only sells goods in Norway, these will normally be higher than in the export-oriented sector, as companies do not compete with other countries. When these wages are moved to the export companies, they will lose competitiveness and have to lay off employees. The central theory promoted by the model is therefore that wage growth in Norway should be determined by negotiations in the export companies, in order to preserve Norwegian competitiveness and jobs in the export sector.

History

The model was designed by the Study Committee for Income Settlements, which was a public committee appointed by Per Borten's government in 1966. The committee consisted of Odd Aukrust, who was then section chief at Statistics Norway and head of the committee, as well as socio-economists Fritz C. Holte and Gerhard Stoltz. The report where the Aukrust model was included was published by Statistics Norway in 1977.

Calculation and explanation of the model

The model consists of seven equations that describe the relationship between wage growth, prices, productivity, inflation, exchange rates, and the rate of closure in the competitive (export-oriented) sector. The central feature of the model is the distinction between the shielded s-sector, which only sells goods on the Norwegian market, and the competitive k-sector, which exports goods and competes with foreign players. A key prerequisite is that the workforce between the two sectors is mobile, and that wages in the two sectors are therefore the same. Salary level The first two equations of the model describe wage growth w in the shielded s-sector and competitive k-sector, as a linear approximation of the prices of the input factors ps and pk and productivity zs and zk. Wage growth is thus the sum of price increases and the increase in productivity. Note that w is the same for the s and k sectors; this is because the workforce is mobile. k is a hypothetical constant for the closure rate in the competitive sector - this captures that the closure rate rises when prices pk or productivity zk rises and the other two variables are kept constant. 1) w ps + zs 2) w pk + zk + k Price level The model's next two equations describe price increases internationally pi, and in the competitive sector pk. The price increase is given by a linear approximation of the price increase measured in euros q and changes in the exchange rate v. 4) pi qi + v 3) pk qk + v Fundamental wage growth When equations 1) –4) are combined, we get the fundamental wage growth, which is a sum of price increases in k-sector qk, increase in exchange rate v, and productivity growth zk. k captures that increased wage growth leads to closures if qk, v and zk are kept constant. 5) w qk + v + zk + k Inflation Equation number 6 describes inflation π. This is given as the sum of international inflation multiplied by the import share α, and national inflation ps multiplied by (1 − α), which is the share of consumption directed at Norwegian goods. 6) π αpi + (1 − α) ps 1) ps w - zs is inserted in 6) to get prices as an endogenous variable: 6.1) π αpi + (1 − α) (w - zs) The main course equation When equation 4),