Kari E.O. Alho

The Finnish Bargaining System: Actors' Perceptions

The paper presents results from a survey addressing views on the wage bargaining system among Finnish employees and employers. The survey is unique in the sense that the same questionnaire was sent to a representative sample of both employee representatives and employers in the private sector in Finland, as well as, in a slightly modified form, to the leadership of the federations and confederations of employers and employees. While the survey reveals a fairly high degree of overall satisfaction with the present form of collective bargaining in Finland, it also clearly indicates that there are issues where the views of the two sides of the labour market push in different directions. The divergent views concern, in particular, the trade-off between wage flexibility and income safety. While the employers would like to see greater freedom in wage setting, the employees, particularly workers, emphasise the role of the safety net provided by the minimum tariff wages stipulated by the collective agreements for each job and skill level. In the employers views, such contractual wage floors inhibit the creation of low-wage jobs, while the employees resist such a view. While employers clearly opt for a more decentralised form of wage bargaining than is currently the case in Finland, it appears from the survey that both employers and employees firmly resist a thoroughly atomistic system of bargaining where the decision on the peace clause would also be transferred to the firm level. In this sense, a collective bargaining system is firmly embedded in the Finnish labour market.

Bilateral transfers and lending in international environmental cooperation

The paper analyzes environmental lending and transfers in a two country general equilibrium framework. The lender country chooses specific environmental investments which it finances in the neighbour country on the basis of the returns they generate for the lender. The gains from this kind of international environmental financing are illustrated with a numerical calibration of the model showing that the gains to the lender country may be fairly sizable in relation to the expenditure directed currently towards environmental protection. These gains, however, essentially depend on the terms of the environmental financing. We also find that debt-for-nature swaps do not in general produce efficient environmental protection if applied uniformly in international environmental financing.

Productivity, Incentives and Relative Wages

The relation between productivity and relative wages is in many ways crucial as to the functioning of the labour market and the wage bargaining system. This is addressed from three angles in the paper. We first present data, which show that there has been a regulation in the Finnish labour market with respect to low-wage employees and low-productivity workers and industries so that the relative wage there clearly exceeds the respective relative productivity. Then, a model is built, which analyses the effects of this kind of regulation and its alleviation in the labour market. The outcome is that such a regulation of the non-skilled sector of the labour market hurts the skilled labour in the form of a lower wage. The possibility to compensate the losers by means of the winners of a deregulation of this type of wage formation is then evaluated. Next, an extended model incorporating efficiency wages, but now with two components of labour, is presented, where the effort of an employee is endogenous and depends on the relative wage rate. This model explains the empirical fact that the relative wages tend to remain unchanged, even though there is a regulation raising the low wages. Finally, we briefly discuss the lesson given by the optimal contract theory on relative wages and their link to productivity.