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Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland

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  • Böckerman, Petri
  • Laaksonen, Seppo
  • Vainiomäki, Jari

Abstract

This paper explores the wage flexibility in Finland. The study covers the private sector workers by using three data sets from the payroll records of employers’ associations. The data span the period 1985-2001. The results reveal that there has been macroeconomic flexibility in the labour market. Average real wages declined during the early 1990’s depression and a large proportion of workers experienced real wage cuts. However, the evidence based on individual-level wage change distributions shows that especially real wages are rigid. In particular, individual-level wage changes have regained the high levels of real rigidity during the late 1990s that prevailed in the 1980s, despite the continued high (but declining) level of unemployment.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15061.

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Date of creation: 06 May 2009
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Handle: RePEc:pra:mprapa:15061

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Keywords: Wage flexibility; wage rigidity; wage cuts;

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  1. Tomi Kyyrä & Mika Maliranta, 2006. "The Micro-Level Dynamics of Declining Labour Share: Lessons from the Finnish Great Leap," Discussion Papers, Government Institute for Economic Research Finland (VATT) 406, Government Institute for Economic Research Finland (VATT).
  2. Roope Uusitalo & Juhana Vartiainen, 2009. "Finland: Firm Factors in Wages and Wage Changes," NBER Chapters, National Bureau of Economic Research, Inc, in: The Structure of Wages: An International Comparison, pages 149-178 National Bureau of Economic Research, Inc.
  3. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2006. "How wages change : micro evidence from the International Wage Flexibility Project," Working Paper Research, National Bank of Belgium 96, National Bank of Belgium.
  4. Petri Böckerman & Roope Uusitalo, 2006. "Erosion of the Ghent System and Union Membership Decline: Lessons from Finland," British Journal of Industrial Relations, London School of Economics, London School of Economics, vol. 44(2), pages 283-303, 06.
  5. Stephen Nickell & Glenda Quintini, 2003. "Nominal wage rigidity and the rate of inflation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(490), pages 762-781, October.
  6. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
  7. Yuriy Gorodnichenko & Enrique G. Mendoza & Linda L. Tesar, 2009. "The Finnish Great Depression: From Russia with Love," NBER Working Papers 14874, National Bureau of Economic Research, Inc.
  8. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers, Centre for Economic Performance & Institute of Economics 23, Centre for Economic Performance & Institute of Economics.
  9. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  10. Erkki Koskela & Roope Uusitalo, 2003. "The Un-Intended Convergence: How the Finnish Unemployment Reached the European Level," CESifo Working Paper Series 878, CESifo Group Munich.
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