Essays on labor market frictions and wage rigidity

Abstract

This dissertation consists of three essays each of which explores a different topic within the common theme of macroeconomics of labor markets. In the first essay, I study pension reform outcomes in a frictional labor market. More specifically, I analyze how labor market structure - whether there is a single labor market or multitude of age-specific labor markets - affects pension reform outcomes in a labor market with frictions. I do this using a search and matching model with an overlapping generations structure, endogenous retirement decisions and exogenous health shocks. I find that a pension reform, where the official retirement age is increased by 2 years, has virtually the same effect on the effective retirement age, total labor input and social security outlays in the single labor market and the age-specific labor market cases. The participation and unemployment rates of 65- to 69-year-olds, however, react differently to the pension reform. Moreover, the importance of the labor market tightness response differs by labor market structure. It plays a role when labor markets are age-specific whereas the effect is negligible with a single labor market.

The second essay studies the role of collective bargaining in shaping the individual-level wage change distribution and in creating wage rigidity in Finland in 2005-2013. The analysis is based on a micro-level data set that I have constructed by combining self-collected and -coded data on collective agreements with Statistics Finland Harmonized Structure of Earnings data. I find that the collective bargaining system is associated with wage rigidity. Moreover, the degree of wage rigidity varies across worker groups - such as workers of different age and tenure - as well as across time. In addition, I show that, instead of a fixed fraction of firms resetting their wages each period, like in traditional wage rigidity models, the share of workers with their contracted wage increases readjusted each period varies depending on the bargaining cycle.

In the third essay, I measure the relative importance of labor market flows to men's and women's unemployment and employment fluctuations at cyclical frequency using Finnish Labor Survey data. The aim is to quantify gender differences in the relative importance of labor market flows, especially the flows involving inactivity, to labor market fluctuations. I find that the participation margin contributes more to the unemployment fluctuations of men while the opposite holds for variations in employment. My results also imply that the over-representation of men in the Goods-sector and the disproportionate share of women in the Services-sector and service occupations is more likely to contribute to the gender differences in labor market dynamics and, especially, in the relative importance of the participation margin than fertility and child-rearing decisions.