IDEAS home Printed from https://ideas.repec.org/a/fep/journl/v29y2020i1p1-32.html
   My bibliography  Save this article

The development of wage dispersion and wage rigidity in Finland

Author

Listed:
  • Jari Vainiomäki

    (Faculty of Management and Business, Tampere University)

Abstract

This paper examines the development of wage dispersion and wage rigidity in Finland. We find that while labour market institutions remained stable they allowed for wage dispersion to increase both within and between firms. Different from many other countries the within firms increase has dominated during the last decade. Second, using the methods developed in the International Wage Flexibility Project (IWFP), we find that micro-level real wage rigidity has remained as high as in the 1980’s and 1990’s but nominal rigidity rose after the financial crisis of the late 2000’s. These rigidities together with low inflation have prevented real wage adjustment downwards particularly during the Great Recession. Finally, we find that the primary margin to adjust wage costs in firms is the adjustment of employment, rather than hourly wages, overtime or regular working hours, or turnover of employees. Furthermore, firm-level wages are very sticky in the face of firm-level employment shocks. Local wage cuts are delayed and muted when employment declines, compared to wage growth.

Suggested Citation

  • Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.
    • Handle: RePEc:fep:journl:v:29:y:2020:i:1:p:1-32
    as

    Download full text from publisher

    File URL: https://www.taloustieteellinenyhdistys.fi/wp-content/uploads/2020/02/1_FEP_1_2020_Vainiomaki_web.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.
    2. Effrosyni Adamopoulou & Emmanuele Bobbio & Marta De Philippis & Federico Giorgi, 2016. "Wage rigidities and business cycle fluctuations: a linked employer-employee analysis," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-32, December.
    3. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    4. 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 and the Associazione ICC, vol. 19(6), pages 1919-1951, December.
    5. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Verdugo, Gregory, 2016. "Real wage cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data," European Economic Review, Elsevier, vol. 82(C), pages 46-69.
    7. Hannu Piekkola, 2007. "Wage Dispersion in Finland: Searching for Human Capital," Journal of Income Distribution, Ad libros publications inc., vol. 16(1), pages 8-25, March.
    8. Donal O'Neill & Aedin Doris & Olive Sweetman, 2016. "Wage Changes in the Irish Labour Market: Within- and Between-Firm Effects," Economics Department Working Paper Series n272-16.pdf, Department of Economics, National University of Ireland - Maynooth.
    9. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    10. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 1-25.
    11. Boris Hirsch & Thomas Zwick, 2015. "How Selective Are Real Wage Cuts? A Micro-analysis Using Linked Employer–Employee Data," LABOUR, CEIS, vol. 29(4), pages 327-347, December.
    12. 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.
    13. Richard Blundell & Claire Crawford & Wenchao Jin, 2014. "What Can Wages and Employment Tell Us about the UK's Productivity Puzzle?," Economic Journal, Royal Economic Society, vol. 0(576), pages 377-407, May.
    14. 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.
    15. 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.
    16. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages 176-195, March.
    18. 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.
    19. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-689, August.
    20. Michael W. L. Elsby & Donggyun Shin & Gary Solon, 2016. "Wage Adjustment in the Great Recession and Other Downturns: Evidence from the United States and Great Britain," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 249-291.
    21. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gulan, Adam & Haavio, Markus & Kilponen, Juha, 2021. "Can large trade shocks cause crises? The case of the Finnish–Soviet trade collapse," Journal of International Economics, Elsevier, vol. 131(C).
    2. Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schaefer, Daniel & Singleton, Carl, 2017. "Recent changes in British wage inequality: Evidence from firms and occupations," MPRA Paper 76744, University Library of Munich, Germany.
    2. Dany Brouillette & Olena Kostyshyna & Natalia Kyui, 2018. "Downward nominal wage rigidity in Canada: Evidence from micro-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 51(3), pages 968-1002, August.
    3. Nicholas Bloom & Scott Ohlmacher & Cristina Tello-Trillo & Melanie Wallskog, 2021. "Pay, Productivity and Management," Working Papers 21-31, Center for Economic Studies, U.S. Census Bureau.
    4. Daniel Baumgarten & Gabriel Felbermayr & Sybille Lehwald, 2020. "Dissecting Between‐Plant and Within‐Plant Wage Dispersion: Evidence from Germany," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 59(1), pages 85-122, January.
    5. Mertens, Matthias, 2023. "Labor Market Power and Between-Firm Wage (In)Equality," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    6. Sarah Louise Jewell & Giovanni Razzu & Carl Singleton, 2020. "Who Works for Whom and the UK Gender Pay Gap," British Journal of Industrial Relations, London School of Economics, vol. 58(1), pages 50-81, March.
    7. Colja Schneck, 2021. "Trends in Wage Inequality in the Netherlands," De Economist, Springer, vol. 169(3), pages 253-289, August.
    8. Christodoulopoulou, Styliani & Kouvavas, Omiros, 2022. "Wages, compositional effects and the business cycle," Working Paper Series 2653, European Central Bank.
    9. Aedín Doris & Donal O’Neill & Olive Sweetman, 2015. "Wage flexibility and the great recession: the response of the Irish labour market," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    10. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    11. Adamopoulou, Effrosyni & Villanueva, Ernesto, 2020. "Wage Determination and the Bite of Collective Contracts in Italy and Spain: Evidence from the Metalworking Industry," IZA Discussion Papers 13542, Institute of Labor Economics (IZA).
    12. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.
    13. Erling Barth & James Davis & Richard B. Freeman, 2018. "Augmenting the Human Capital Earnings Equation with Measures of Where People Work," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 71-97.
    14. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    15. Daniel Schäfer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics working papers 2020-11, Department of Economics, Johannes Kepler University Linz, Austria.
    16. John Forth & Nikolaos Theodoropoulos & Alex Bryson, 2023. "The role of the workplace in ethnic wage differentials," British Journal of Industrial Relations, London School of Economics, vol. 61(2), pages 259-290, June.
    17. Dagmara Nikulin & Joanna Wolszczak-Derlacz & Aleksandra Parteka, 2021. "GVC and wage dispersion. Firm-level evidence from employee–employer database," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 16(2), pages 357-375, June.
    18. Niklas Engbom & Christian Moser, 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," American Economic Review, American Economic Association, vol. 112(12), pages 3803-3847, December.
    19. Winkler, Erwin, 2020. "Diverging paths: Labor reallocation, sorting, and wage inequality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224535, Verein für Socialpolitik / German Economic Association.
    20. Michael W. L. Elsby & Donggyun Shin & Gary Solon, 2016. "Wage Adjustment in the Great Recession and Other Downturns: Evidence from the United States and Great Britain," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 249-291.

    More about this item

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:29:y:2020:i:1:p:1-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Editorial Secretary The email address of this maintainer does not seem to be valid anymore. Please ask Editorial Secretary to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/talouea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.