Micro-level evidence on wage rigidities in Finland

Petri Böckerman (), Seppo Laaksonen and Jari Vainiomäki

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyses the flexibility of the Finnish labour markets from the microeconomic perspective by focusing on individual-level wage changes for job stayers. The study covers the private sector workers by using three separate data sets obtained from payroll records of employers’ associations. Two main conclusions from wage formation emerge. First, there has been macroeconomic flexibility in the labour market. Real wage rigidity declined during the early 1990’s recession and a large proportion of workers experienced real wage cuts. We also find that average wage changes respond negatively to an increase in unemployment. Second, the evidence based on individual-level wage change distributions show that especially real wages are definitely rigid in Finland in international comparison. In addition, the evidence points out that individual-level wage changes have regained the high levels of real rigidity during the late 1990s that prevailed in the 1980s, despite the continued high (but declining) level of unemployment.

Keywords: Wage flexibility; wage rigidity; wage formation; wage cuts (search for similar items in EconPapers)
JEL-codes: J30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2006-12-15
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:1811

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