Wage drift as a flexibility factor in Finnish wage formation

Abstract

The article examines the macro-level flexibility of wage formation in the Finnish corporate sector using individual-level data. It focuses in particular on wage drift – defined as wage increases exceeding collectively agreed wage rises – and its role as a flexibility mechanism in wage formation across business cycles, regional differences, and worker groups.

Special attention is given to measurement issues. Wage inflation is measured using the annual wage changes of employees who have remained with the same employer and in the same job, based on individual-level wage structure data. This approach is argued to provide a more accurate measure of wage drift than official wage statistics, as it allows for precise control of changes in workforce composition.

The findings suggest that wage drift, as measured in this way, has been a significant source of flexibility in Finnish wage formation. The study also examines wage development among workers who have changed jobs or employers and finds broadly similar dynamics, although in some respects even stronger effects.

Overall, the results indicate that recent strong declines in unemployment and increases in full-time employment do not necessarily imply as strong a risk of wage inflation as might be inferred from earlier statistical evidence. (AI translation)

Publication Information

Fornaro, P., & Maliranta, M. (2022), Liukumat suomalaisen palkanmuodostuksen joustotekijänä, Kansantaloudellinen aikakauskirja, 118(3), 347–378.

• ISSN: 0022-8427