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Drivers of wage dispersion in Finland

Author

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  • Paolo Fornaro

Abstract

In this study, I examine the main drivers of wage dispersion growth in the Finnish private sectors for the years 2001–2022. In particular, I quantify the share of salary variance growth due to within-firm variation, as well as the one due to between-industry heterogeneity. I find that wage dispersion in Finland has increased over time, and that while within-firm variation is the largest contributor to wage dispersion for any given year, the growth in variance has been mainly caused by between-firm variation, with between-industry variation being especially important. These results are particularly strong when I exclude the years characterized by the COVID-19 pandemic. Interestingly, I find that a limited number of industries accounts for these results. I also examine other possible drivers of income inequality, such as regional and occupation-related dispersion, finding that between-regional wage differences have not been a meaningful driver of aggregate inequality.

Suggested Citation

  • Paolo Fornaro, 2025. "Drivers of wage dispersion in Finland," Working Papers 353, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    • Handle: RePEc:pst:wpaper:353
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    More about this item

    Keywords

    wage inequality; industry structure; sorting;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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