Who Bear the Burden of Wage Cuts? Evidence from Finland during the 1990s

Abstract

This paper focuses on the share and incidence of nominal and real wages cuts in the Finnish private sector. It complements other analyses of downward wage rigidities especially by looking for individual and employer characteristics that might explain the likelihood of observing an individual’s wage cut. The examinations are based on Probit models that include individual characteristics, employer characteristics, and the form of remuneration as explanatory variables. We find relatively few individual or employer characteristics that have a strong and common influence on the likelihood of wage decline across the different segments of labour markets. However, the full-time workers have had a lower likelihood of nominal and real wage declines during the 1990s compared with part-time workers. Declines in wages have also been more common in small plants/firms. In addition, nominal wage declines have been more transitory by their nature within the segments of the Finnish labour markets in which they are more common. Overall, the frequency of nominal wage declines has been fairly low for manufacturing non-manuals and service sector workers but somewhat higher for manual workers in manufacturing. However, nominal wage moderation together with a positive inflation rate produced real wage cuts for a large proportion of employees during the worst recession years of the early 1990s.

• ISSN: 1457-2923
• ISBN: 952-5071-84-7
• JEL: J31
• Publication in PDF-format