In this blog post, I put Finnish salaries into the European context. We look at wage differences and wage distribution in different employer groups in Europe.
This blog is based on a 2019 report by the Labor Institute for Economic Research. Merja Kauhanen of the Labor Institute for Economic Research and Olli-Matti Laine of the Bank of Finland conducted the study.
In the past two blog posts, I have compared the cost of living and the standard of living in Finland to those of a few selected countries. Now I extend that comparative approach to salaries. That’s a topic about which I’ve written and spoken extensively.
Finnish salaries in the European Context: the report
The report compares Finnish salaries, salary levels, and wage distribution to those in Europe. The data comes from the European Union Statistics on Income and Living Conditions (EU-SILC).
The report focuses on the monthly salaries of full-time employees both in the private and public sectors.
The primary focus is on the 2015 salaries. They do, however, also look at trends and developments in salary levels and wage distribution over time. Thus they include data from 2007 to 2015. Here I don’t include that information.
The report uses gross salaries as taxation levels and social security contributions are difficult to take into account in such comparisons.
They do also talk about real salaries which factor in purchasing power. That gives a more comparable picture of differences between European countries than looking solely at nominal salaries.
According to the report, the highest average nominal salaries in 2015 were in Switzerland and the lowest in Romania. The Finnish average monthly gross salary of 3 386 € placed Finland in 9th place in 2015 among the 32 European countries studied. Of the other Nordic countries, only Iceland had lower salaries than Finland.
Corrected for purchasing power, Finland’s position didn’t change much. Switzerland still had the highest salaries. Finland had dropped down one position and was now in 10th place. Austria overtook Finland in that comparison.
While comparing nominal and real salaries across Europe is interesting, the most important part of the report has to do with wage distribution and more detailed salary comparisons. We’ll turn to those next.
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Comparing wage distributions in European countries
When putting Finnish salaries into the European context, Kauhanen and Laine also discussed wage distribution in Europe. That refers to the gap between high-wage and low-wage earners. It’s an indication of wage inequality.
Kauhanen and Laine examined it in several different ways.
One measure they used was the Gini coefficient. It compares all data points and measures how far apart from each other they are on average. The larger the Gini coefficient of a country, the larger are differences in wages between high and low earners. The more wage inequality there therefore is.
They concluded that the largest differences in wages in 2015 were in Bulgaria, Portugal, Estonia, Great Britain, Cyprus, Spain, Latvia, and Lithuania. The smallest differences, in turn, were in Slovakia, Belgium, Denmark, Romania, and Finland.
Another measure measuring wage distribution is the so-called P90/P10 wage ratio. It describes the wage ratio between the top decile (P90) and bottom (P10) decile earners. The higher the ratio, the bigger is the wage difference between the highest and the lowest earners.
In 2015, the 90/10 ratio in Finland was 2.7. It means that in 2015 the top 10 % of earners made 2.7 times as much as the bottom 10 %. Of all the European countries included in this part of the analysis, Finland this ratio was the fourth lowest.
Another similar measure is the P90/P50 ratio. That measures wage distribution within the top half of all wage earners. Again, the larger the ratio is the bigger are wage differences.
In 2015, this ratio in Finland was 1.76. So the top 10 % of wage earners made 1.76 times more than a median wage earner. That was the 8th lowest ratio in Europe in 2015.
Finland had a similarly low wage distribution in the lower half of the wage distribution.
Finnish salaries in the European context: wage comparisons
After looking at the differences in wage distributions across Europe, Kauhanen and Laine compared salaries of different types of wage earners across Europe.
They chose to look at relative wage differences based on gender, educational level, age groups, national origin, profession, and industry.
Here I will only present their analysis for the educational level, national origin, profession, industry, and sector.
Wage differences & education level
To examine wage differences between employees with different education levels, Kauhanen and Laine divided employees into three different educational groups. These were basic education, secondary education, and tertiary education.
There were large differences in education levels in Europe. For example, the share of employees only having basic education was largest in Portugal (54.4 %), Spain (42.9 %), and Italy (41.9 %).
The share of employees who had tertiary education was largest in Ireland (37.8 %), Norway (36.7 %), and Finland (35.5 %).
Finland (19.2 %) and Estonia (17.3 %) had the lowest share of employees with only basic education.
In Finland, the average salary of those with tertiary education was 3 936 €/month in 2015. For employees with secondary education, it was 2 937 €. For employees with basic education, the average salary was, in turn, 2 779 €.
Among the sixteen European countries included in this comparison, Finland ranked 7th in the average monthly salary of employees with tertiary education. For them, the highest salaries were in Norway.
Salaries of employees with secondary or basic education were 5th highest in Finland in 2015. Norway topped here as well.
In Finland, employees with basic education earn about 70 % of what employees with tertiary education earn. In countries where wage distribution is wider, those with only basic education earn about 45 % of what tertiary education holders earn.
Wage differences & national origin
In almost all of the European countries Kauhanen and Laine studied, the average salaries of employees with a foreign background were lower than those of native-born employees.
In Finland, employees with a foreign background made about 91.6 % of what employees with a Finnish background made in 2015.
The largest gap between the salaries of the native-born and the foreign-born employees was in Italy and Spain. There, foreign-born employees made on average 69 % of what native Italian and Spanish employees made in 2015.
Foreign-born employee populations in all of these countries are, however, very heterogeneous. Thus the variation in salaries within this group is substantial.
Wage differences & profession
Another way to put Finnish salaries into the European context is to compare salaries across different professions. To do that, Kauhanen and Laine looked at wage differences in four different categories of professions.
In one category they grouped directors, managers, and senior specialists. In another they included specialists.
One group included mid-level salary earners. This group included, for example, customer service personnel, construction and warehouse workers, delivery personnel, and farmers.
The fourth group consisted of employees in assisting positions such as cleaners, assisting construction workers, assistant cooks, and so forth.
The average monthly salary of the first group of employees in Finland in 2015 was 4 520 €.
For the second group, the average monthly salary was 3 430 €. The average monthly salary for the mid-level earners was 2 849 €. In the fourth group, it was 2 288 € in 2015.
In the group that included directors, managers, and senior specialists, Finnish salaries were the 6th highest among the 17 European countries in this comparison.
The countries included were Belgium, Norway, Denmark, the Netherlands, Ireland, Sweden, Great Britain, Austria, Finland, Germany, France, Italy, Spain, Portugal, Greece, Estonia, and Romania.
The highest salaries for top managers in this group of countries were in Norway.
Finnish specialist salaries were 8th highest among the seventeen. For the mid-level earners and the assistant group, Finnish salaries were the 7th highest.
In Finland, employees in assisting positions make about 50 % of what directors, managers, and senior specialists make. Specialists make about 76 % and mid-level earners about 63 % of director, manager, and senior specialist’s salaries.
Source: Kauhanen, Merja and Laine, Olli-Matti 2019: Suomalainen palkkataso eurooppalaisessa vertailussa, attachment C, p. 84. Palkansaajien tutkimuslaitos, Raportteja 39.
Wage distribution & industry
For the analysis, Kauhanen and Laine grouped different industries into 5 larger groups. These included the manufacturing industry, construction, higher-paid service industry, and lower-paid service industry. The last group included public services, national defense, education, and health and social services.
In the higher-paid service industry, the Finnish average monthly salary of 3 774.60 € put Finland in 8th place among a group of 16 European countries in 2015.
The countries included were Norway, Denmark, the Netherlands, Ireland, Sweden, Great Britain, Austria, Finland, Germany, France, Italy, Spain, Portugal, Greece, Estonia, and Romania.
In the group that included public services, Finland was in 7th place with an average monthly salary of 3 384.50 €.
The average monthly salary of 3 492.50 €, in turn, put the Finnish construction industry salaries in 4th place.
The lower-paid service industry was also in 4th place with an average salary of 3 168.20 €.
In the manufacturing industry, an average monthly salary of 3 774.30 € put Finland in 5th place.
Typically, salaries were highest in the higher-paid service industry in all of these countries except in Norway. There, the highest mean monthly salaries were in the manufacturing industry.
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