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The Development Of Wage Dispersion And Wage Rigidity In Finland

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  • Vainiomaki Jari

    (Faculty of Management, University of Tampere)

Abstract

This paper examines the development of wage dispersion and wage rigidity in Finland since mid- 1990’s. We show that the increase in between-firms variance dominated during late 1990’s, but after that the overall increase in wage dispersion has occurred within-firms. This is different from many other countries where the increase in between-firms wage differences have explained (a large share of) the increase in overall wage variation. Second, we estimate parametric measures for downward nominal and real wage rigidities using the methods developed in the International Wage Flexibility Project (IWFP). Thereby we update these measures for Finland until 2013, when previously estimates have been available only until 2000. We find that micro-level real wage rigidity has remained high and nominal rigidity rose during the financial crisis. These rigidities together with low inflation have prevented real wage adjustment downwards particularly during recessions. Finally, we find that the primary margin to adjust wage costs in firms is the adjustment of employment, rather than other possible margins, such as hourly wages, overtime or regular working hours, or turnover of employees. Furthermore, firm-level wages are very sticky in the face of local employment shocks, and wage cuts are delayed and muted when employment declines, compared to wage growth.

Suggested Citation

  • Vainiomaki Jari, 2017. "The Development Of Wage Dispersion And Wage Rigidity In Finland," Working Papers 1712, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:1712
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    File URL: http://urn.fi/URN:ISBN:978-952-03-0385-3
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    References listed on IDEAS

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    1. Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.
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    Cited by:

    1. Gulan, Adam & Haavio, Markus & Kilponen, Juha, 2021. "Can large trade shocks cause crises? The case of the Finnish–Soviet trade collapse," Journal of International Economics, Elsevier, vol. 131(C).
    2. Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.

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    More about this item

    JEL classification:

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

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