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The Development Of Wage Dispersion And Wage Rigidity In Finland

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  • Vainiomaki Jari

    (Faculty of Management, University of Tampere)

Abstract

This paper examines the development of wage dispersion and wage rigidity in Finland since mid- 1990’s. We show that the increase in between-firms variance dominated during late 1990’s, but after that the overall increase in wage dispersion has occurred within-firms. This is different from many other countries where the increase in between-firms wage differences have explained (a large share of) the increase in overall wage variation. Second, we estimate parametric measures for downward nominal and real wage rigidities using the methods developed in the International Wage Flexibility Project (IWFP). Thereby we update these measures for Finland until 2013, when previously estimates have been available only until 2000. We find that micro-level real wage rigidity has remained high and nominal rigidity rose during the financial crisis. These rigidities together with low inflation have prevented real wage adjustment downwards particularly during recessions. Finally, we find that the primary margin to adjust wage costs in firms is the adjustment of employment, rather than other possible margins, such as hourly wages, overtime or regular working hours, or turnover of employees. Furthermore, firm-level wages are very sticky in the face of local employment shocks, and wage cuts are delayed and muted when employment declines, compared to wage growth.

Suggested Citation

  • Vainiomaki Jari, 2017. "The Development Of Wage Dispersion And Wage Rigidity In Finland," Working Papers 1712, University of Tampere, School of Management, Economics.
  • Handle: RePEc:tam:wpaper:1712
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    File URL: http://urn.fi/URN:ISBN:978-952-03-0385-3
    File Function: First version, 2017
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    References listed on IDEAS

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    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 967-1015.
    2. Giulia Faggio & Kjell G. Salvanes & John Van Reenen, 2010. "The evolution of inequality in productivity and wages: panel data evidence," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1919-1951, December.
    3. Erling Barth & Alex Bryson & James C. Davis & Richard Freeman, 2016. "It's Where You Work: Increases in the Dispersion of Earnings across Establishments and Individuals in the United States," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 67-97.
    4. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie Ward, 2006. "The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project," Proceedings, Federal Reserve Bank of San Francisco.
    5. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
    6. Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2010. "Micro and Macro Level Wage Rigidity: Lessons from Finland," Finnish Economic Papers, Finnish Economic Association, vol. 23(1), pages 27-42, Spring.
    7. Fuss, Catherine, 2009. "What is the most flexible component of wage bill adjustment? Evidence from Belgium," Labour Economics, Elsevier, vol. 16(3), pages 320-329, June.
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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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