Public Sector Wage-Setting: Can an Export-Led Labour Market Model Be Created in Finland?

The Finnish labour market model has been undergoing a transformation since 2007, and the role of the public sector in the labour market model has sparked a lot of discussion. Wage-setting in the public sector is an important issue, as it has a direct impact on public finances and indirectly on the competitiveness of exports. Finland has tried to create an export-driven labour market model following the model of the other Nordic countries, but this has not been successful. This report begins with a review of the differences between wage setting in the private and public sectors and discusses why coordination in the labour market leads to wage moderation and why it is difficult to maintain coordination. This will be followed by a review of the labour market models of Sweden, Denmark and Norway, especially from the perspective of public sector wage setting. The aim here is to find answers to why these countries have succeeded in creating an export-driven labour market model that covers the entire labour market, and which institutions maintain coordination. In other European countries, public sector wage-setting is more controlled through public sector budget constraints, and the report also describes key findings from other European countries. Finally, it is considered what Finland can learn from the labour market models of the other Nordic countries in particular.