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Who bears the burden of wage cuts? Evidence from Finland during the 1990s

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  • Petri Böckerman
  • Seppo Laaksonen
  • Jari Vainiomäki

Abstract

Purpose - This paper aims to explore the incidence of nominal and real wage cuts in the Finnish private sector during the 1990s. Design/methodology/approach - Estimation of econometric models for the probability of wage cuts using individual‐level wage survey data from the payroll records of the Finnish employers' organizations. Findings - Centralized nominal wage freezes together with a positive inflation rate produced real wage cuts for a large proportion of workers during the worst recession years of the early 1990s. Hence, centralized bargaining shaped the adjustment. The share of nominal wage cuts does not increase with falling inflation, which is consistent with downward wage rigidities. Full‐time workers have had a lower likelihood of wage cuts compared with part‐time workers. Declines in wages have also been more common in small plants. There is an important transitory component in wage cuts. Practical implications - Provides useful information about the adjustment of wages at the individual level. Originality/value - Few papers have analysed individual and employer characteristics that account for wage cuts. The paper contributes to the literature on wage rigidity.

Suggested Citation

  • Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2007. "Who bears the burden of wage cuts? Evidence from Finland during the 1990s," International Journal of Manpower, Emerald Group Publishing Limited, vol. 28(2), pages 100-121, May.
    • Handle: RePEc:eme:ijmpps:v:28:y:2007:i:2:p:100-121
    DOI: 10.1108/01437720710747947
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    Cited by:

    1. Aedín Doris & Donal O’Neill & Olive Sweetman, 2015. "Wage flexibility and the great recession: the response of the Irish labour market," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    2. Olafsdottir, Katrin, 2020. "A deep recession came with deep wage cuts," Economics Letters, Elsevier, vol. 189(C).
    3. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
    4. Boris Hirsch & Thomas Zwick, 2015. "How Selective Are Real Wage Cuts? A Micro-analysis Using Linked Employer–Employee Data," LABOUR, CEIS, vol. 29(4), pages 327-347, December.

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    More about this item

    Keywords

    Finland; Pay policies; National economy; Private sector organizations;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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