Wage Setting in Finland : Increasing Flexibility in Centralised Wage Agreements

The centralised wage agreements have helped to contain inflation. There is evidence that wage increases were more moderate when a central agreement was concluded than in periods when no central agreement was reached. Nevertheless, there is also evidence that centralised wage setting has had some drawbacks in terms of reducing employment among low-skilled and younger workers because of high minimum wage floors. In the current wage setting system there are components that allow for greater relative wage flexibility. These should be used more extensively. The role of the government in future agreements should be to encourage greater relative wage flexibility within the current bargaining framework. This paper relates to the 2006 Economic Survey of Finland (www.oecd.org/eco/surveys/finland).