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Micro-level evidence on wage rigidities in Finland

Author

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

Abstract

This paper analyses the flexibility of the Finnish labour markets from the microeconomic perspective by focusing on individual-level wage changes for job stayers. The study covers the private sector workers by using three separate data sets obtained from payroll records of employers’ associations. Two main conclusions from wage formation emerge. First, there has been macroeconomic flexibility in the labour market. Real wage rigidity declined during the early 1990’s recession and a large proportion of workers experienced real wage cuts. We also find that average wage changes respond negatively to an increase in unemployment. Second, the evidence based on individual-level wage change distributions show that especially real wages are definitely rigid in Finland in international comparison. In addition, the evidence points out that 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, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1811
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    File URL: https://mpra.ub.uni-muenchen.de/1811/1/MPRA_paper_1811.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2009. "Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland," Working Papers 0972, University of Tampere, School of Management, Economics.
    2. 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.
    3. Kauhanen, Antti & Maliranta, Mika, 2012. "Micro-components of aggregate wage dynamics," ETLA Working Papers 1, The Research Institute of the Finnish Economy.
    4. 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.
    5. Strawczynski, Michel & Zeira, Joseph, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers 7271, C.E.P.R. Discussion Papers.
    6. Salem M. Abo-Zaid, 2010. "Sticky Wages, Incomplete Pass-Through and Inflation Targeting: What is the Right Index to Target?," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 53(1), pages 28-58.

    More about this item

    Keywords

    Wage flexibility; wage rigidity; wage formation; wage cuts;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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