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Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland

Author

Listed:
  • Petri Böckerman

    (Labour Institute for Economic Research)

  • Seppo Laaksonen

    (University of Helsinki)

  • Jari Vainiomäki

    (School of Management, University of Tampere)

Abstract

This paper explores the wage flexibility in Finland. The study covers the private sector workers by using three data sets from the payroll records of employers' associations. The data span the period 1985-2001. The results reveal that there has been macroeconomic flexibility in the labour market. Average real wages declined during the early 1990's depression and a large proportion of workers experienced real wage cuts. However, the evidence based on individual-level wage change distributions shows that especially real wages are rigid. In particular, individual-level wage changes have regained the high levels of real rigidity during the late 1990s that revailed in the 1980s, despite the continued high (but declining) level of unemployment.

Suggested Citation

  • Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2009. "Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland," Working Papers 0972, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0972
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    File URL: http://urn.fi/urn:isbn:978-951-44-7720-1
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    References listed on IDEAS

    as
    1. 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.
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    3. 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.
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    5. Erkki Koskela & Roope Uusitalo, 2003. "The Un-Intended Convergence: How the Finnish Unemployment Reached the European Level," CESifo Working Paper Series 878, CESifo.
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    8. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    9. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
    10. Roope Uusitalo, 2005. "Do Centralized Bargains Lead to Wage Moderation? Time-Series Evidence from Finland," Springer Books, in: Hannu Piekkola & Kenneth Snellman (ed.), Collective Bargaining and Wage Formation, pages 121-132, Springer.
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    More about this item

    Keywords

    wage flexibility; wage rigidity; wage cuts;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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