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Wage formation in Finland, 1960-1994

Author

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  • Jaakko Pehkonen

    (School of Business and Economics, University of Jyväskylä, Finland)

Abstract

In this study we examine wage formation in Finland. One distinctive feature of the study is the long investigation period that spans the thirty-five-year period from 1961 to 1994, and thus includes the turbulent years of the early 1990s. The results imply that productivity growth is the main determinant of wage growth. In addition, real wage growth is affected by unemployment, union power, replacement rate, import prices and various taxes. One conclusion of this study is that all previous results – as well as those reported in this paper – how different taxes influence real labour costs in the long-run must be treated with considerable care. Although our results reject the idea that all taxes are borne by labour in the long run, we cannot be sure that the opposite is true. It is, however, tempting to argue that in a world of imperfectly functioning markets and imprecise information various taxes lead to higher labour costs and, consequently, that the structure of taxation matters to wages and thus to unemployment at least at the medium term.

Suggested Citation

  • Jaakko Pehkonen, 1999. "Wage formation in Finland, 1960-1994," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 82-91, Autumn.
    • Handle: RePEc:fep:journl:v:12:y:1999:i:2:p:82-91
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    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/f1999_2c.pdf
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    References listed on IDEAS

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    1. Machin, Stephen & Manning, Alan, 1999. "The causes and consequences of longterm unemployment in Europe," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 47, pages 3085-3139 Elsevier.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    4. Erkki Koskela & Ronnie Schöb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 379-396, July.
    5. Nickell, S J & Andrews, M, 1983. "Unions, Real Wages and Employment in Britain 1951-79," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 183-206, Supplemen.
    6. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    7. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
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    9. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
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    11. Jaakko Kiander & Jaakko Pehkonen, 1999. "Finnish unemployment: observations and conjectures," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 94-108, Autumn.
    12. Pasi Holm & Seppo Honkapohja & Erkki Koskela, 1993. "Incidence effects of proposed reforms for the payroll tax in Finnish manufacturing," Finnish Economic Papers, Finnish Economic Association, vol. 6(2), pages 67-78, Autumn.
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    Cited by:

    1. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "Capital accumulation and unemployment: new insights on the Nordic experience," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 977-1001, November.
    2. Ángel Melguizo & José González-Páramo, 2013. "Who bears labour taxes and social contributions? A meta-analysis approach," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(3), pages 247-271, August.
    3. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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