EurWORK European Observatory of Working Life

Finland: Evolution of Wages during the Crisis

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  • Published on: 05 July 2012



About
Country:
Finland
Author:
Simo Virtanen
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

Trends and relations with other working conditions

Average wages among the employed have been increasing through 2006-2010 despite the financial crisis, albeit at a slower rate. The sum of wages paid did, however, decrease in 2009, particularly in manufacturing .The decrease is, of course, related to a corresponding decrease in hours worked and productivity. Practices that have been used to minimise direct dismissals include temporary lay-offs, spending up working time accounts as well as taking holiday bonuses as vacation days. In general, one can talk about wage moderation in Finland and this is further advanced by the 2011 framework agreement between social partners.

Questionnaire

Block 1: Wage trends 2006-2010

1.1.a Please provide annual statistics on average gross monthly earnings or yearly average wages by gender, occupational category (ISCO), part-time/full-time in your country from 2006 to the latest available year.

Table - Average gross monthly earnings and average change in total earnings
Nominal wages increased during 2006-2010 across various groups. The total sum of wages paid did, however, decrease in 2009.
 

2006

2007

2008

2009

2010

Wage and salary index - annual nominal change (%)

4,7

5,9

7

-1,1

1,7

           
Wages in Euros (monthly) - Total

2634

2734

2876

2971

3043

By gender          
1. Male

2922

3035

3185

3288

3358

2. Female

2343

2433

2575

2667

2736

By education          
Primary (ISCED 1-2)  

2322

2402

2505

2566

Secondary (ISCED 3-4)  

2394

2496

2562

2629

Lowest level tertiary (ISCED 5B)  

2767

2944

3024

3097

Lower-degree level tertiary (ISCED 5A, Bachelor’s level)  

3036

3177

3215

3249

Higher-degree level tertiary (ISCED 5A, Master’s level)  

3920

4110

4158

4235

Doctorate or equivalent tertiary (ISCED 6)  

4672

4953

5097

5135

By contract type (hourly)          
1. Full-time

15,89

16,52

17,33

17,96

18,38

2. Part-time

13,22

13,71

14,63

15,19

15,71

Notes: Wage and salary index includes sum of earnings, excluding stock options. Wages in Euros (structure of earnings data) are average nominal earnings. Monthly figures only include earnings of full-time workers, but they include all items.

Source: Statistics Finland

1.1.b Please provide the following methodological information on the provided statistics:

  • Definition of the earnings (what components are included or excluded?):

  • Coverage (sectors excluded, if any; type of employees):

  • Constant or current prices (real or nominal terms):

  • Source data (for example administrative data; national accounts or specific survey):

Wage and salary index data

These data are collected by Statistics Finland from Tax Administration as well as employer surveys (data description). They include all items except stock options and present the total sum of earnings.

Structure of earnings data

These data are gathered by Statistics Finland (data description). Some data are collected by employer organisations from their members, others by directly from employers by Statistics Finland. Monthly earnings include all items.

1.2.a Please provide for the selected sectors, when available the following annual trend statistics on average gross monthly earnings and important context variables. The time period is 2006 until the latest available year.

Table –Manufacturing (C)
Total wages paid in manufacturing decreased markedly in 2009 and somewhat less in 2010. These decreases were in line with corresponding decreases in employment and hours worked. Productivity increased in 2010 signalling growth in output with a smaller workforce.
 

2006

2007

2008

2009

2010

Wage and salary index

3,7

4,5

3,9

-9,1

-1,8

Total employment

397300

402200

410800

377700

356800

Total working time (1000 hours)

638200

645800

642800

564700

545400

% Productivity yearly increase

7,7

6,0

1,0

-7,5

8,8

Notes: Wage and salary index includes sum of earnings, excluding stock options. Total employment and working time are given for employees only.

Source(s): Statistics Finland

Table –Construction (F)
Total wages paid in construction decreased in 2009, but increased again in 2010. Corresponding changes in employment, working time, and productivity occurred.
 

2006

2007

2008

2009

2010

Wage and salary index

8,6

11,5

11

-4,4

1,3

Total employment

144800

156300

161900

149500

151500

Total working time (1000 hours)

253500

273700

282700

255600

265300

% Productivity yearly increase

-1,1

2,4

-0,1

-1,8

0,6

Notes: Wage and salary index includes sum of earnings, excluding stock options. Total employment and working time are given for employees only.

Source(s): Statistics Finland

Table –Hotels, restaurants, and catering (I)
Total wages paid in the sector decreased somewhat in 2009 and 2010. There were corresponding decreases in employment and hours worked. Productivity decreased in 2009, but increased again in 2010.
 

2006

2007

2008

2009

2010

Wage and salary index

6,8

6

6,8

-0,4

-0,7

Total employment

65300

66100

68200

66300

64300

Total working time (1000 hours)

102900

104300

107500

104900

102100

% Productivity yearly increase

1,9

-3,0

3,3

-3,4

3,8

Notes: Wage and salary index includes sum of earnings, excluding stock options. Total employment and working time are given for employees only.

Source(s): Statistics Finland

Table –Financial services (K)
Total wages paid in financial services decreased in 2009, but increased again in 2010. Productivity decreased already in 2008 when working time also reached its peak during the period.
 

2006

2007

2008

2009

2010

Wage and salary index

4,4

7,2

8,2

-1,5

1,4

Total employment

39500

40000

41800

41700

41400

Total working time (1000 hours)

64600

66400

67400

66300

66400

% Productivity yearly increase

7,1

3,5

-3,6

4,8

2,2

Notes: Wage and salary index includes sum of earnings, excluding stock options. Total employment and working time are given for employees only.

Source(s): Statistics Finland

Table –Public administration (O; O,P,Q)
Total employment and working hours have decreased throughout the period. Productivity increased except in 2010.
 

2006

2007

2008

2009

2010

Wage and salary index (O,P,Q; see note)

3,4

3,9

6,1

3,9

3,5

Total employment

179600

177700

177300

176900

175500

Total working time (1000 hours)

308100

304700

303600

301500

299100

% Productivity yearly increase

1,5

2,6

2,7

1,9

-0,1

Notes: Total employment and working time are given for employees only. Information on earnings (wage and salary index) is only publicly available only for a combination of public administration (O), public sector education (P), and public sector health and social services (Q).

Source(s): Statistics Finland

1.2.b Please provide again the following methodological information on the provided statistics:

  • Definition of the earnings (what components are included or excluded?):

  • Coverage (sectors excluded, if any; type of employees):

  • Constant or current prices (real or nominal terms):

  • Source data (for example administrative data; national accounts or specific survey):

  • Definition of the labour productivity data:

Wage and salary index data

These data are collected by Statistics Finland from Tax Administration as well as employer surveys (data description). They include all items except stock options and present the total sum of earnings.

Employment, working time, and productivity data

These data come from national accounting system (data description). Productivity measure used here is based on output (as opposed to value added). Employment and hours worked refer to employees only.

1.3 Please provide for your country the available statistical insights/studies on the following wage-related trends, briefly commenting: the period 2006-2010.

  1. Wage drift: differences between the actual wage increase and the collectively agreed wage increases; Are there also remarkable sector differences in this regard? (cf. the 5 selected sectors)

  2. Wage inequality or dispersion: differences between highest and lowest wage categories; the % of low-wage workers; Are there also remarkable sector differences in this regard? (cf. the 5 selected sectors)

  3. The use of variable pay and financial participation; Are there also remarkable sector differences in this regard? (cf. the 5 selected sectors)

Assessment of wage drifts is difficult since collective agreements do not necessarily coincide with calendar years and the schedules of agreed raises vary between sectors. Confederation of Finnish Industries (Elinkeinoelämän keskusliitto EK), which collects wage and salary information from its member companies, has addressed the issue in its reports. During 2008-2010, EK estimates that wage drift has accounted for between a quarter and one-third of wage increases in its member companies. Wage drift has typically been higher in manufacturing than in services.

Wage dispersion statistics are not publicly available by sector. EK's wage and salary reports do, however, address also this point, although the information is limited to EK's member companies. These reports use the ratio between 90th and 10th percentile salaries as the dispersion measure. In general, wage dispersion is higher among upper white-collar than lower white-collar or blue-collar employees. This pattern is even more pronounced if bonuses are included in calculations. Dispersion was also higher in the service sectors than in manufacturing or construction.

Variable pay ('tulospalkkaus' in Finnish) is another issue addressed by EK's wage and salary reports. The proportion of employees receiving bonuses has been around one-third in EK's member companies and highest in manufacturing as well as financial services. When measured as the proportion of earnings, bonuses in construction become more significant. In general, bonuses have been more common and significant among white-collar than blue-collar employees.

Block 2: Studies on the relationship with working conditions

2.1.a Please provide information on relevant studies or statistical findings which show how trends in employment creation or destruction explain possible negative wage trends during the current the crisis in the country. Is there for example playing a composition effect: higher paid industry jobs are cut and partly replaced by lower-paid service jobs? Is it a question of shorter working hours, less overtime?

Unemployment rate increased in Finland from 6.4% in 2008 to 8.2% in 2009 and 8.4% in 2010. Between 2008 and 2009, unemployment increased particularly fast among the middle educational groups (ISCED 3-5). Between 2009 and 2010, unemployment increased particularly, and somewhat unusually, among the better educated groups (ISCED 5A-6).

2.1.b If there is no negative wage trend, please provide information on relevant studies or statistical findings which explain why wages in the country did not reacted in a negative way to this economic shock of the current crisis? Are trends in working conditions and employment included in these explanations?

In Finland, it is possible to lay off employees temporarily rather than permanently for financial or production-related reasons. This has the mutual benefit of keeping employment contract in effect if and when the employer's situation improves. Unemployment benefits are paid during a temporary lay-off, which can also be part-time (reduced working hours). Carrying out temporary lay-offs requires negotiations with employee representatives, but when legitimate reason exists (e.g., significant decline in orders) the final decision is taken by the employers.

The use of temporary lay-offs peaked in 2009 and in 2010 remained above long-term average (since 1980; Confederation of Finnish Industries EK). Temporary lay-offs were most common in the manufacturing sector where the decrease in annual working hours among employees was most significant (12%; all reasons, Statistics Finland). Working hours among employees in construction dropped 10% (Statistics Finland).

Depending on the collective agreement, it is possible in Finland to work in a flexible manner using a working time account ('työaikapankki'). Agreements vary on the limits of time and the time frame in which the excess hours can be used. There are no uniform statistics on the use of these accounts, but reportedly excess hours have been used up during the financial crisis in order to minimise lay-offs.

2.2 Please provide information on relevant studies or statistical findings (current or from the past) on what effect a change in wages (increase, freeze or cut) has on the working conditions in the country or their outcome (job security, well-being at work and job satisfaction).

A study by Johansson (Johansson 2004) examined determinants of job satisfaction, using Finnish data of the European Community Household Panel 1996-2001. According to these results, higher wages increased job satisfaction even when controlling for a host of other factors. Johansson also found that the level of income as well as changes in income affect job satisfaction.

2.3 Please provide information on relevant studies or statistical findings showing a trade-off effect between wages and other working conditions in the crisis. Possible other working conditions are other forms of rewards, job security, working time revisions, changes in work organisation, and training opportunities.

No such studies or statistical findings regarding the current crisis have been found. There are some related articles but they have used earlier data.

Two studies (Böckerman & Ilmakunnas 2004; Böckerman, Ilmakunnas & Johansson 2010) have examined so called compensating wage differentials using data largely from the late 1990s. In other words, they've examined whether unfavourable working conditions (e.g., job insecurity) are at least partly compensated by higher earnings. These studies have found some evidence for the existence of compensating wage differentials in Finland when other factors influencing earnings are taken into account. Yet, it would be too simplistic to draw a conclusion that this effect works the other way around (from earnings to working conditions), equally among all employee groups, or in the short run (e.g., during an acute crisis).

2.4 Complementary to question 2.3, we have included in annex data of the EWCS 2010 for your country that compare access to training, feelings of job security and changes in working time for employees that have been experiencing a wage decrease, increase or no change in the year prior to the survey. These data are indicative for possible trade-off effects. Could you please have a brief look to these data and comment?

Without any reference data or error margin information it is difficult to say what is included in the 12% who report a decrease in salary or income in Finland and how unusual this figure might be. It may include temporary lay-offs. Income may have also dropped because production goals were not achieved due to decreased demand thereby eliminating bonuses. As described above, nominal wages have increased, albeit at a slower rate and this is reflected in the EWCS numbers.

The relationship between training and income seems to be quite weak in Finland. Further, it doesn't support the idea of trade-off as income development is worse among those who did not receive training. It would probably suggest that workplaces, where reduced demand has lowered earnings, have also had to cut down training, although reportedly training cuts have not been among the most common methods to achieve savings (a 2010 report by social partners' Round Table of Productivity [Tuottavuuden pyöreä pöytä]).

The relationship between working time and income in Finland suggests that fewer hours have resulted in smaller incomes. Without knowing the proportion of those whose hours have decreased, it is difficult to attribute this to a trade-off. It may rather be a result of reduced overtime due to declining demand.

The relationship between perceived job security and income appears to be quite weak in Finland. It also not indicative of a trade-off or compensating wage differentials (see 2.3) as income development seems to worsen as job security decreases. The result is more indicative of employer's financial problems both hurting income development and reducing job security.

Block 3: Relevant policy practices

3.1 Please identify and describe 3 key company or sector examples where a trade-off has been realised between wages and other features of the employment contractual arrangements during the crisis.

Depending on the collective agreement employees in Finland can be paid 'holiday bonus.' Its amount is typically 50% of daily salary per each vacation day and it is typically paid in summer. As this is based on agreement, it is also possible to agree that this supplemental salary is taken as added vacation instead. As the result of the financial crisis, exchanging holiday bonus to vacation days has become more common, saving some money for the employers. The typical 'exchange rate' is 1 extra vacation day for 2 days of holiday bonus (as it is 50% of regular earnings). The exchange can be made more enticing for employees by making it flexible rather than requiring all-or-nothing exchange. The exchange is typically subject to management approval as too many extra vacation days can disrupt normal operation. There are no statistics about the extent to which holiday bonuses have been exchanged to vacation days, though.

3.2 Please identify policies recently put in place to support vulnerable groups of workers who have been possibly most affected by the recent wage trends. Priority should be given to policies and measures put in place to support low-wage workers, working poor and women. Additional attention could be paid to young workers, elderly workers and migrant workers.

In Finland, state and local taxes are collected by the same tax authorities. The structure of those taxes varies, though, as do the deductions. One deduction available in local taxes is so called basic deduction, which is designed to benefit low-income tax payers. This deduction is applied to 'pure income (as defined in the tax code),' i.e., income left after all other deductions (but before taxes), and it decreases quite rapidly as income increases. The amount of the deduction was increased to 2200 Euros per year in 2010 (from 1480 in 2009). It has since been increased to 2850 Euros per year.

During 2006-2010, a temporary low-income support system operated on a trial basis. It was based on reducing tax liability of employers (excluding the state and its organisations) who hire low-income employees, i.e., those full-time employees with monthly salaries between 900 and 2000 Euros. Support in the trial system was restricted to employees over 54 years of age for employment reasons and since a general system was considered to be too costly. It was utilised primarily by local governments. The program was not extended after the trial period. Its results were assessed in two studies and both found its effects to be small.

Commentary by the NC

The issue of impact of crisis on wages is not straightforward in the case of Finland. Collective agreements are not necessarily made for calendar years or contract periods and schedules of raises may vary between sectors. Overall, average nominal wages have increased, but at a lower rate since the beginning the financial crisis. In that sense, one can talk about wage moderation in Finland. Total earnings decreased in 2009, based on wage and salary index. As the total employment and total hours worked also decreased, the decline in earnings resulted from temporary lay-offs or direct dismissals rather than declining wages among the employed.

During the crisis, the unemployment rate increased moderately. Many employers used temporary lay-offs instead of direct dismissals anticipating a recovery, although some temporary lay-offs turned into permanent ones.

After several years of sectoral and local collective bargaining, the central organisations negotiated a framework agreement in 2011 as a model for sectoral negotiations. Signatories to the agreement included three employee central organisations SAK, STTK, and AKAVA, as well as private employers' organisation EK, the state government employer, local governments' organisation, and the Evangelical Lutheran Church. The framework agreement was designed to provide economic stability, favourable development of working life, and moderate development of wages under highly uncertain economic conditions. The agreement received sufficient coverage in sectoral negotiations in order to become fully recognised and trigger promised actions by the government, such as the extension of the so called job alternation system, which allows employees under certain circumstances to take a leave of up to one year, provided that the employer hires an unemployed person for the same period. The person on leave receives financial support, and the government was considering cutting the support level.

Simo Virtanen, Finnish Institute of Occupational health

References

  • Böckerman P & Ilmakunnas P. 2004. "Do job disamenities raise wages or ruin job satisfaction?" Helsinki Center for Economic Research, Discussion Papers 20.

  • Böckerman P, Ilmakunnas P & Johansson E. 2010. "Job security and employee well-being: Evidence from matched survey and register data." Labour Institute for Economic Research, Discussion Papers 262.

  • Huttunen K, Pirttilä J & Uusitalo R. 2009. "The employment effects of low-wage subsidies." Labour Institute for Economic Research, Discussion Papers 254.

  • Huttunen K, Pirttilä J & Uusitalo R. 2010. "Matalapalkkatuki: hyvä idea, mutta ei toimi käytännössä." Työpoliittinen Aikakauskirja 1/2010, 53-59.

  • Johansson E. 2004. "Job satisfaction in Finland: Some results from European Community Household panel 1996-2001." The Research Institute of the Finnish Economy, Discussion Papers 958.

  • Karikallio H & Volk R. 2009. "Suomen matalapalkkatuen kohdentuminen ja työllisyysvaikutukset." Työ- ja elinkeinoministeriön julkaisuja, Työ ja yrittäjyys, 63/2009.

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