Vol. 23, No. 1

Topi Miettinen:
History-dependent Reciprocity in Alternating Offer Bargaining (pp. 1–15)


This paper studies alternating-offer bargaining with players who have history-dependent reciprocity preferences. To allow for reciprocal motiva¬tion, the existing history-dependent models are modified by reversing the way aspirations depend on previous offers. The model exhibits a unique equilibrium where an agreement is reached immediately. As the players’ discount factors approach unity, players share the pie according to the golden division: the responder’s share of the whole pie coincides with the ratio of the proposer’s and the responder’s shares. Thus, there is a first-mover disadvantage.

(JEL: C72, Z13)

Pär Österholm:
Improving Unemployment Rate Forecasts Using Survey Data (pp. 16–26)


This paper investigates whether forecasts of the Swedish unemployment rate can be improved by using business or household survey data. We conduct a simulated out-of-sample forecast exercise in which the performance of a Bayesian VAR model with only macroeconomic variables is compared to that when the model also includes variables based on survey data. Results show that the forecasting performance at short horizons can be improved. The improvement is largest when forward-looking variables based on data from the manufacturing industry are employed.

(JEL: E17, E24, E27)

Petri Böckerman, Seppo Laaksonen and Jari Vainiomäki:
Micro and Macro Level Wage Rigidity: Lessons from Finland (pp. 27–42)


The paper explores wage flexibility in Finland. The study covers the private sector workers by using three data sets from the payroll records of employers’ associations. The data span the period 1985–2001. The results reveal that there has been macroeconomic flexibility in the labour market. Average real wages declined during the depression of the early 1990s and a large proportion of workers experienced real wage cuts. However, the evidence based on individual-level wage change distributions shows that real wages, especially, are rigid downwards. In particular, during the late 1990s, individual-level wage changes regained the high levels of real rigidity that prevailed in the 1980s, despite the continued high (but declining) level of unemployment.

(JEL: J30, J33)

Rita Asplund:
Sources of Increased Wage Differentials in the Finnish Private Sector (pp. 43–61)


This paper explores the sources underlying the marked increase in the dispersion of private-sector wages in Finland since the mid-90s by use of a recently proposed method to decompose changes along the whole wage distribution over a period of time into several factors contributing to those changes. The results suggest that changes in the way individual and workplace attributes are valued in the labour market have been the driving force behind both real wage growth and increasing wage dispersion. This finding holds true most strongly for white-collar manufacturing workers, who dominate the higher-paid segment of the Finnish private sector. This phenomenon is less pronounced for services sector workers and, eventually, disappears when moving towards the lower end of the sector’s wage distribution. Taken together, these findings are well in line with international evidence stating that changes in the way attributes are rewarded in the labour market tend to drive the growth in wage dispersion in the upper tail of the distribution while changes in the workforce composition are likely to be a notably stronger force behind widening wage differentials in the lower tail of the distribution.

(JEL: J31)

Finnish Economic Papers 1/2010