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


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


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.

Suggested Citation

  • Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2009. "Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland," MPRA Paper 15061, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15061

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    References listed on IDEAS

    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. 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. 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.
    5. 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.
    6. Stephen Nickell & Glenda Quintini, 2003. "Nominal wage rigidity and the rate of inflation," Economic Journal, Royal Economic Society, vol. 113(490), pages 762-781, October.
    7. Roope Uusitalo & Juhana Vartiainen, 2009. "Finland: Firm Factors in Wages and Wage Changes," NBER Chapters,in: The Structure of Wages: An International Comparison, pages 149-178 National Bureau of Economic Research, Inc.
    8. 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.
    9. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
    10. 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, vol. 44(2), pages 283-303, June.
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    More about this item


    Wage flexibility; wage rigidity; wage cuts;

    JEL classification:

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

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