Public Sector Pay in Finland

This study analyses the forces determining public and private sector pay in Finland. The data used is a 7 per cent sample taken from the Finnish 2001 census. It contains information on 42 680 male workers, of which 8 759 are employed in public and 33 921 in the private sector. The study documents and describes data by education, occupation and industry. We estimate earnings equations for the whole sample as well as for four industries (construction, real estate, transportation and health) that provide an adequate mix of both public and sector workers. The results suggest that the private-public sector pay gap of about one per cent can be accounted for by differences in observable characteristics between the sectors (3.4 per cent) and lower returns from these characteristics (-2.3 per cent). However, the industry-level analysis indicates that the earnings gaps vary across industries, and are negative in some cases. These inter-industry differences in public-private gaps persist even when the usual controls are introduced. This suggests that public sector wage setters need greater local flexibility, which should result in less uniform wages within the public sector.

News Shocks and Business Cycles: Bridging the Gap from Different Methodologies

An important disconnect in the news driven view of the business cycle formalized by Beaudry and Portier (2004), is the lack of agreement between different—VAR and DSGE—methodologies over the empirical plausibility of this view. We argue that this disconnect can be largely resolved once we augment a standard DSGE model with a financial channel that provides amplification to news shocks. Both methodologies suggest news shocks to the future growth prospects of the economy to be significant drivers of U.S. business cycles in the post-Greenspan era (1990-2011), explaining as much as 50% of the forecast error variance in hours worked in cyclical frequencies