Incomes policy, functional income distribution and wage restraint in Finland in 1962–2014

Abstract

The study analyses the history of Finnish incomes policy. The era of incomes policy is examined as a history of wage settlements, with the central focus of interest being the moderation of wage settlements. The period 1962–2014 is periodised by distinguishing within it, among other things, periods of more moderate and less moderate wage settlements. The definition of wage restraint takes as its starting point the average behaviour of the trade union movement, which is described by a dynamic empirical equation depicting the development of functional income distribution during the period 1962–2014.

One of the central findings of the analysis is that a period of wage restraint began in Finland in the mid-1990s and continued until 2008. The Finnish trade union movement adapted to the European low-inflation environment. Centralised incomes policy settlements served as the key instrument. The first incomes policy settlement of the period was strongly promoted by Paavo Lipponen’s first government, which took office in early 1995. Prime Minister Lipponen wanted Finland to be part of the deepening European political and economic integration, and so did the Finnish trade union movement.

As a result, the wage share reflecting functional income distribution remained at a historically low level following the decline of the early 1990s right up until 2009. This adaptation meant that the Finnish trade union movement broke away from its traditional behaviour following the devaluation cycle. The change in behaviour highlights the role of the central wage earner confederations. Largely through their influence, the objective of low inflation was adopted more broadly within the trade union movement. In outlining a new model for wage bargaining, positions are taken either directly or indirectly on this kind of considerable influence wielded by the central labour market confederations.

The period 2008–2014, which includes the years of economic crisis, does not stand out as a period of above-average wage inflation. (AI translation)

• ISSN: 1795-1801 (Online)
• ISBN: 978-952-209-150-5 (Online)
• Press Release in Finnish
• Publication in PDF-format