IDEAS home Printed from https://ideas.repec.org/p/zbw/bofrdp/rdp1991_021.html
   My bibliography  Save this paper

Wage bargaining and the wage drift: Evidence from Finland

Author

Listed:
  • Tyrväinen, Timo

Abstract

This article examines various aspects of the wage drift. It is reaffirmed that in Finland wage drift is closely related to the excess demand for labour. As excess demand for labour indicates that contractual wage is below the equilibrium wage we specify a bargaining model which determines the target wage. This model for equilibrium (real) wages consists of variables influencing profits, on the one hand, and the utility of the union, on the other hand In addition, the relative bargaining power matters. After having described the three-step bargaining process in Finland, an error correction equation for the conditional wage drift is specified with changes in target wages, changes in contract wages and the target-error stemming from the past as independent variables. Several variants of the model are estimated. We conclude that, in Finland, 1) there is a robust inverse correlation between contract wages and the wage drift. The latter acts as an error correcting faetor. The relevant equilibrium wage is generated by the bargaining process described in the paper. 2) the adjustment of wages through the wage drift is not instantaneous. 3) wage drift is contributed by "target errors" stemming from the past periods. 4) the variation in the wage drift appears to be correlated with errors in (inflation) expectations. 5) the wage drift tends to be larger when the dispersion of the economic position of the firms - measured by standard deviation of the stock of orders - is large.

Suggested Citation

  • Tyrväinen, Timo, 1991. "Wage bargaining and the wage drift: Evidence from Finland," Bank of Finland Research Discussion Papers 21/1991, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1991_021
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/211624/1/bof-rdp1991-021.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Holden, S., 1989. "Wage Drift And Bargaining: Evidence From Norway," Papers 348, London School of Economics - Centre for Labour Economics.
    2. repec:bla:scandj:v:79:y:1977:i:3:p:366-74 is not listed on IDEAS
    3. Pencavel, John & Holmlund, Bertil, 1988. "The Determination of Wages, Employment, and Work Hours in an Economy with Centralised Wage-Setting: Sweden, 1950-83," Economic Journal, Royal Economic Society, vol. 98(393), pages 1105-1126, December.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Holmlund, Bertil, 1986. "Centralized Wage Setting, Wage Drift and Stabilization Policies under Trade Unionism," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 243-258, July.
    6. Earle, John S & Pencavel, John, 1990. "Hours of Work and Trade Unionism," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages 150-174, January.
    7. repec:zbw:bofrdp:1991_005 is not listed on IDEAS
    8. Schager, Nils Henrik, 1988. "Causes of Wage Increases in Swedish Manufacturing. A Remarkable Case of Regular Behaviour," Working Paper Series 195, Research Institute of Industrial Economics.
    9. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
    10. repec:zbw:bofrdp:1991_002 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    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. repec:zbw:bofrdp:1991_021 is not listed on IDEAS
    2. Tyrväinen, Timo, 1991. "Wage bargaining and the wage drift : Evidence from Finland," Research Discussion Papers 21/1991, Bank of Finland.
    3. repec:zbw:bofrdp:1992_035 is not listed on IDEAS
    4. Tyrväinen, Timo, 1992. "Wage drift and error correction: Evidence from Finland," Research Discussion Papers 35/1992, Bank of Finland.
    5. Tyrväinen, Timo, 1992. "Wage drift and error correction: Evidence from Finland," Bank of Finland Research Discussion Papers 35/1992, Bank of Finland.
    6. Tyrväinen, Timo, 1991. "Unions, wages and employment: evidence from Finland," Bank of Finland Research Discussion Papers 16/1991, Bank of Finland.
    7. Mighri, Zouheir & Ragoubi, Hanen & Sarwar, Suleman & Wang, Yihan, 2022. "Quantile Granger causality between US stock market indices and precious metal prices," Resources Policy, Elsevier, vol. 76(C).
    8. Neil R. Ericsson, David F. Hendry & Kevin M. Prestiwch, "undated". "The UK Demand for Broad Money over the Long run," Economics Papers W29, Economics Group, Nuffield College, University of Oxford.
    9. Hibbs, Douglas Jr. & Locking, Hakan, 1996. "Wage compression, wage drift and wage inflation in Sweden," Labour Economics, Elsevier, vol. 3(2), pages 109-141, September.
    10. Smimou, K., 2017. "Does gold Liquidity learn from the greenback or the equity?," Research in International Business and Finance, Elsevier, vol. 41(C), pages 461-479.
    11. Tyrväinen, Timo, 1991. "Unions, wages and employment : evidence from Finland," Research Discussion Papers 16/1991, Bank of Finland.
    12. Hendry, David F & Ericsson, Neil R, 1991. "An Econometric Analysis of U.K. Money Demand in 'Monetary Trends in the United States and the United Kingdom' by Milton Friedman and Anna Schwartz," American Economic Review, American Economic Association, vol. 81(1), pages 8-38, March.
    13. Shahbaz, Muhammad & Trabelsi, Nader & Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Jiao, Zhilun, 2021. "Relationship between green investments, energy markets, and stock markets in the aftermath of the global financial crisis," Energy Economics, Elsevier, vol. 104(C).
    14. Bollerslev, Tim & Engle, Robert F. & Nelson, Daniel B., 1986. "Arch models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 49, pages 2959-3038, Elsevier.
    15. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May.
    16. Schmidt, Torsten, 2001. "Finanzreformen in der Bundesrepublik Deutschland: Analyse der Veränderungen der Finanzverfassung von 1949 bis 1989," RWI Schriften, RWI - Leibniz-Institut für Wirtschaftsforschung, volume 67, number 67.
    17. Neil R. Ericsson & David F. Hendry & Kevin M. Prestwich, 1998. "The Demand for Broad Money in the United Kingdom, 1878–1993," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 289-324, March.
    18. Anne laure Delatte & Julien Fouquau, 2010. "Smooth transition in China: New evidence in the cointegrating money demand relationship," Economics Bulletin, AccessEcon, vol. 30(1), pages 265-273.
    19. Tyrväinen, Timo, 1995. "Wage determination in the long run, real wage resistance and unemployment: Multivariate analysis of cointegrating relations in 10 OECD economies," Bank of Finland Research Discussion Papers 12/1995, Bank of Finland.
    20. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
    21. Steinar Holden, 1998. "Wage Drift and the Relevance of Centralised Wage Setting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(4), pages 711-731, December.
    22. Ligia Topan & Miguel Jerez & Sonia Sotoca, 2020. "The impact of oil prices on products groups inflation: is the effect asymmetric?," Documentos de Trabajo del ICAE 2020-02, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

    More about this item

    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:zbw:bofrdp:rdp1991_021. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofgvfi.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.