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Micro and Macro Level Wage Rigidity: Lessons from Finland

Author

Listed:
  • Petri Böckerman

    () (Labour Institute for Economic Research)

  • Seppo Laaksonen

    () (Department of Social Research, University of Helsinki)

  • Jari Vainiomäki

    () (Department of Economics and Accounting, University of Tampere)

Abstract

The paper explores 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 depression of the early 1990s and a large proportion of workers experienced real wage cuts. However, the evidence based on individual-level wage change distributions shows that real wages, especially, are rigid downwards. In particular, during the late 1990s, individual-level wage changes regained the high levels of real rigidity that prevailed in the 1980s, despite the continued high (but declining) level of unemployment.

Suggested Citation

  • Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2010. "Micro and Macro Level Wage Rigidity: Lessons from Finland," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 27-42, Spring.
  • Handle: RePEc:fep:journl:v:23:y:2010:i:1:p:27-42
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    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep12010/fep12010bockerman.pdf
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    References listed on IDEAS

    as
    1. Yuriy Gorodnichenko & Enrique G. Mendoza & Linda L. Tesar, 2012. "The Finnish Great Depression: From Russia with Love," American Economic Review, American Economic Association, vol. 102(4), pages 1619-1644, June.
    2. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2007. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 195-214, Spring.
    3. Tomi Kyyrä & Mika Maliranta, 2008. "The micro-level dynamics of declining labour share: lessons from the Finnish great leap ," Industrial and Corporate Change, Oxford University Press, vol. 17(6), pages 1147-1172, December.
    4. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie Ward, 2006. "The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project," Proceedings, Federal Reserve Bank of San Francisco.
    5. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
    6. Petri Böckerman & Roope Uusitalo, 2009. "Minimum Wages and Youth Employment: Evidence from the Finnish Retail Trade Sector," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 388-405, June.
    7. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
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    Citations

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    Cited by:

    1. Laamanen, Jani-Petri, 2017. "Home-ownership and the Labour Market: Evidence from Rental Housing Market Deregulation," Labour Economics, Elsevier, vol. 48(C), pages 157-167.
    2. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2014. "A theory of wage adjustment under loss aversion," Kiel Working Papers 1977, Kiel Institute for the World Economy (IfW).
    3. Päällysaho, Miika Matias, 2017. "The Short- and Long-Term Effects of Graduating During a Recession: Evidence from Finland," Working Papers 96, VATT Institute for Economic Research.
    4. Maczulskij, Terhi, 2013. "Public–private sector wage differentials and the business cycle," Economic Systems, Elsevier, vol. 37(2), pages 284-301.
    5. Vainiomaki Jari, 2017. "The Development Of Wage Dispersion And Wage Rigidity In Finland," Working Papers 1712, University of Tampere, School of Management, Economics.

    More about this item

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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