The Wage Curve : Evidence from the Finnish Metal Industry

Show full item record

Title: The Wage Curve : Evidence from the Finnish Metal Industry
Author: Pekkarinen, Tuomas
Contributor: University of Helsinki, Department of Political Science
Thesis level: Licentiate thesis
Abstract: In this paper we study the wage curve with Finnish metal industry panel data from the period 1991-95. Three different measures of hourly wage are used as dependent variables. As the unemployment variable we use the unemployment rate of the regional county. In order to controls for the effects of long-term unemployent we split the unemployment rate into shortand long-term unemployment. We also control for the effect of active labour market policies by augmenting the wage equation with a variable for subsidised employment schemes. Results indicate that hourly wages are responsive to regional labour market conditions. The estimated unemployment-elasticity of wages in the Finnish metal industry is somewhat smaller than the elasticities reported by other studies. Long-term unemployment increases wages and subsidised employment schemes decrease them. Their combined effect is zero. This elasticity in the wages is due to the sensitivity of the fixed personal hourly wages. Piece rates are insensitive to the changes in unemployment rates. Our candidate for the estimated slope of the wage curve in the Finnish metal industry is -0.04 from an equation where the dependent variable is the logarithm of the fixed hourly wage and the unemployment variable is corrected so that the long-term unemployed are removed from the pool of unemployed and the labour force and the workers in subsidised employment schemes are considered as unemployed. There appears to be a considerable amount of heterogeneity in the slope of the wage curve between different subpopulations. Hourly wages of men are more responsive to changes in unemployment than those of women. The elasticity of hourly wages also tends to decrease as the workers get older. Wages are clearly more elastic in the densely populated areas than in the sparsely populated areas. Both regional and individual unobservable effects are controlled for as well as the common group bias in the estimates of the standard errors. The specification of the functional form is discussed by adding non-linear terms and polynomial structures of unemployment rate to the equation. We also control for the possible endogeneity of the unemployment rate with different instrumental variables. The study contains a short survey on the wage curve literature. The wage setting in the Finnish metal industry is also briefly discussed. Finally, we discuss different theoretical interpretations of the wage curve and as an example present the efficiency wage model by Blanchflower and Oswald (1994).
Description: Endast sammandrag. Inbundna avhandlingar kan sökas i Helka-databasen ( Elektroniska kopior av avhandlingar finns antingen öppet på nätet eller endast tillgängliga i bibliotekets avhandlingsterminaler.Only abstract. Paper copies of master’s theses are listed in the Helka database ( Electronic copies of master’s theses are either available as open access or only on thesis terminals in the Helsinki University Library.Vain tiivistelmä. Sidottujen gradujen saatavuuden voit tarkistaa Helka-tietokannasta ( Digitaaliset gradut voivat olla luettavissa avoimesti verkossa tai rajoitetusti kirjaston opinnäytekioskeilla.
Date: 1999-09-01
Subject: wage curve - unemployment

Files in this item

Total number of downloads: Loading...

Files Size Format View
abstract.pdf 48.77Kb PDF View/Open

This item appears in the following Collection(s)

Show full item record