Drivers of wage dispersion in Finland

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.

• ISSN: 2984-2158 (Online)
• ISBN: 978-952-209-224-3 (Online)
• JEL: E01, E24, E25, J01
• Publication in PDF-format