IDEAS home Printed from
   My bibliography  Save this article

Sources of Increased Wage Differentials in the Finnish Private Sector


  • Rita Asplund

    () (The Research Institute of the Finnish Economy ETLA)


This paper explores the sources underlying the marked increase in the dispersion of private-sector wages in Finland since the mid-90s by use of a recently proposed method to decompose changes along the whole wage distribution over a period of time into several factors contributing to those changes. The results suggest that changes in the way individual and workplace attributes are valued in the labour market have been the driving force behind both real wage growth and increasing wage dispersion. This finding holds true most strongly for white-collar manufacturing workers, who dominate the higher-paid segment of the Finnish private sector. This phenomenon is less pronounced for services sector workers and, eventually, disappears when moving towards the lower end of the sector’s wage distribution. Taken together, these findings are well in line with international evidence stating that changes in the way attributes are rewarded in the labour market tend to drive the growth in wage dispersion in the upper tail of the distribution while changes in the workforce composition are likely to be a notably stronger force behind widening wage differentials in the lower tail of the distribution.

Suggested Citation

  • Rita Asplund, 2010. "Sources of Increased Wage Differentials in the Finnish Private Sector," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 43-61, Spring.
  • Handle: RePEc:fep:journl:v:23:y:2010:i:1:p:43-61

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Yekaterina Chzhen & Karen Mumford, "undated". "Gender Gaps Across the Earnings Distribution in Britain: Are Women Bossy Enough?," Discussion Papers 09/27, Department of Economics, University of York.
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    4. Thomas Lemieux, 2002. "Decomposing changes in wage distributions: a unified approach," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 646-688, November.
    5. Stephen G. Donald & David A. Green & Harry J. Paarsch, 2000. "Differences in Wage Distributions Between Canada and the United States: An Application of a Flexible Estimator of Distribution Functions in the Presence of Covariates," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 609-633.
    6. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, March.
    7. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    8. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    9. Kohn, Karsten, 2006. "Rising Wage Dispersion, After All! The German Wage Structure at the Turn of the Century," IZA Discussion Papers 2098, Institute for the Study of Labor (IZA).
    10. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    11. Melly, Blaise, 2005. "Decomposition of differences in distribution using quantile regression," Labour Economics, Elsevier, vol. 12(4), pages 577-590, August.
    12. Joshua Angrist & Victor Chernozhukov & Iván Fernández-Val, 2006. "Quantile Regression under Misspecification, with an Application to the U.S. Wage Structure," Econometrica, Econometric Society, vol. 74(2), pages 539-563, March.
    13. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    14. Blaise Melly, 2005. "Public-private sector wage differentials in Germany: Evidence from quantile regression," Empirical Economics, Springer, vol. 30(2), pages 505-520, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Asplund, Rita & Lilja, Reija, 2010. "Wage formation and gender wage gaps: The changing role of human capital in the Finnish technology industry," Discussion Papers 1230, The Research Institute of the Finnish Economy.

    More about this item

    JEL classification:

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


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:23:y:2010:i:1:p:43-61. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.