Drivers of wage dispersion in Finland

Paolo Fornaro ()

No 353, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

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.

Keywords: wage inequality; industry structure; sorting (search for similar items in EconPapers)
JEL-codes: E01 E24 E25 J01 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2025-04-24
New Economics Papers: this item is included in nep-eur
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