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Micro-level evidence on wage rigidities in Finland

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

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1811.

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Date of creation: 15 Dec 2006
Date of revision:
Handle: RePEc:pra:mprapa:1811
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  3. Maliranta, Mika, 2002. "Factor Income Shares and Micro-Level Restructuring. An Analysis of Finnish Manufacturing," Discussion Papers 796, The Research Institute of the Finnish Economy.
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  13. Paul J. Devereux & Joseph G. Altonji, 2000. "The extent and consequences of downward nominal wage rigidity," Open Access publications 10197/311, School of Economics, University College Dublin.
  14. Ernst Fehr & Simon G�chter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
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  17. Louis N. Christofides & Thanasis Stengos, 2003. "Wage rigidity in Canadian collective bargaining agreements," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 429-448, April.
  18. 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.
  19. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series 1252, CESifo Group Munich.
  20. 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.
  21. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, University of Gothenburg, Department of Economics.
  22. Anni Heikkilä & Hannu Piekkola, 2005. "Explaining the Desire for Local Bargaining: Evidence from a Finnish Survey of Employers and Employees ," LABOUR, CEIS, vol. 19(2), pages 399-423, 06.
  23. 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.
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  25. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  26. Ilmakunnas, Pekka & Maliranta, Mika, 2001. "The Turnover of Jobs and Workers in a Deep Recession: Evidence from the Finnish Business Sector," Discussion Papers 747, The Research Institute of the Finnish Economy.
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