Job Market (In)Flexibility

In this report we examine factors related to the flexibility of Finnish labor market and relate what previous literature has found on the effects of these factors on employment and flexibility of the labor markets. The factors related to labor market flexibility we describe in our own data are how compressed wage distributions are in selected low wage sectors, and within country migration of the Finnish labor force, especially following unemployment. The literature survey attempts to focus on most recent and most reliable studies capable of revealing the causal effect of EPL, minimum wages and factors related to mobility on employment and other labor market flexibility related outcomes. Comparing Finnish EPL to other countries, we find that the Finnish EPL does not seem particularly strict at least according to written rules. Our literature survey does not find systematic and large negative employment effects from stricter EPL or higher minimum wages. We do find some studies that indicate other negative labor market effects, especially a negative effect on employment flows. We study in our own data how binding collectively agreed wages appear by looking at the relative distance of actual wages from worker-specific and industry-specific minimum wages in four selected low wage industries. We find that wages are relatively compressed in especially cleaning industry. On within country migration our results suggest that out-migration is on average larger from regions with high unemployment and that more than 90% of the unemployed do not migrate to another region. According to our results, the event of being displaced due to a plant closure induces more migration within country. We also show that the income development is not favorable for migrant immediately after the migration.