Who bears the burden of wage cuts? Evidence from Finland during the 1990s

Petri Böckerman (Labour Institute for Economic Research, Helsinki, Finland)
Seppo Laaksonen (University of Tampere, Tampere, Finland and University of Helsinki, Helsinki, Finland)
Jari Vainiomäki (University of Tampere, Tampere, Finland)

International Journal of Manpower

ISSN: 0143-7720

Publication date: 15 May 2007

Abstract

Purpose

This paper aims to explore the incidence of nominal and real wage cuts in the Finnish private sector during the 1990s.

Design/methodology/approach

Estimation of econometric models for the probability of wage cuts using individual‐level wage survey data from the payroll records of the Finnish employers' organizations.

Findings

Centralized nominal wage freezes together with a positive inflation rate produced real wage cuts for a large proportion of workers during the worst recession years of the early 1990s. Hence, centralized bargaining shaped the adjustment. The share of nominal wage cuts does not increase with falling inflation, which is consistent with downward wage rigidities. Full‐time workers have had a lower likelihood of wage cuts compared with part‐time workers. Declines in wages have also been more common in small plants. There is an important transitory component in wage cuts.

Practical implications

Provides useful information about the adjustment of wages at the individual level.

Originality/value

Few papers have analysed individual and employer characteristics that account for wage cuts. The paper contributes to the literature on wage rigidity.

Keywords

Citation

Böckerman, P., Laaksonen, S. and Vainiomäki, J. (2007), "Who bears the burden of wage cuts? Evidence from Finland during the 1990s", International Journal of Manpower, Vol. 28 No. 2, pp. 100-121. https://doi.org/10.1108/01437720710747947

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited

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