Pay differences between private and municipal sectors in Finland

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We’ve discussed salaries in many of our previous blogs. In this one, we’ll discuss pay differences between the private and municipal sectors in Finland. This discussion is based on a recent research paper by Terhi Maczulskij and Eetu Isotalo. 

In this study, monthly earnings include the regular monthly salary. It also includes different types of extras. Such extras as, for example, overtime pay are included. So are those that are tied to the individual or the job. It also includes the taxable value of benefits.

The discussion is based on the analysis of data from the period 2014-2016.

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The differences between the private and municipal sectors: general findings

In general, private sector salaries are higher than municipal salaries. On average, the difference is 16 % in favor of the private sector. 

The average monthly salary in the private sector during the study period was 3 800 €. In the municipal sector, it was 3 300 €. 

However, the average figures do not tell much as we’ll see later on in this blog.

Municipal employees on average are older than private-sector employees. They are also more often women. They also more often have small children. 

In general, municipal-sector employees have attained a higher education level than private-sector employees. Education in the technical, business and social scientific fields are more common in the private sector. Instead, employees in the municipal sector most commonly have education in healthcare or social services. 

Employees in the municipal sector are more often professionals as well as service, sales, and personal care workers. In the private sector, in contrast, they are more commonly clerical support workers, plant and machine operators, drivers, and those working as craftspeople in different industries.   

Now, let’s look at the results of the study in more detail.

Pay differences between the private and municipal sectors in Finland

In their analysis, Maczulskij and Isotalo focused on geographical and gender differences in pay between the municipal and private sectors. We’ll start with the geographical differences.

Geographical differences in pay

As we have discussed before, there are geographical differences in pay in Finland. Maczulskij and Isotalo, however, show that the geographical variance in pay is much more pronounced in the private sector than in the municipal sector.

In Uusimaa, the average monthly earnings in the private sector were 4 228 € whereas in Kainuu they were 3 170 €. The difference is nearly 1 000 € per month.

However, for municipal employees, the variance in monthly earnings is much smaller. In Uusimaa, the average monthly earnings were 3 380 €. In South Savo, they were 3 170 €. Thus a difference of just over 200 €.

As we said above, on average the difference between private and municipal sector salaries is 16 % in favor of private-sector employees. There is, however, geographical variance also in this gap. 

In Uusimaa, private-sector employees earn, on average, 25 % more than municipal-sector employees. However, private-sector employees in Savo, Ostrobothia, and Pirkanmaa make only 2-5 % more than municipal employees. In Kainuu, municipal employees instead have the advantage. There, the difference is 1 % in favor of municipal employees. 

This research showed that in areas where the unemployment rate is lower, the gap between public and municipal sector salaries is larger. 

When the researchers compared the average earnings of private and municipal employees with similar characteristics, the gap shrank noticeably. The characteristics they took into account included, for example, gender, age, experience, and education level and field.

With those taken into consideration, the gap in earnings was only 3 % in favor of the private sector. Thus for the large part, differences in the average earnings of these sectors are explained by the employee characteristics.

In Uusimaa, an employee in the private sector earns about 6 % more than an employee with similar characteristics in the municipal sector. In Savo, in turn, the municipal-sector employee earns a bit more than their counterpart in the private sector.

Gender differences in pay 

In several of our previous blogs, we’ve talked about the gender segregation of the Finnish labor market. We’ve also talked about gender differences in salaries. Naturally, we’ve also discussed the mechanisms that exist to combat those.

Maczulskij and Isotalo’s research also talks about gender differences. Rather than comparing women’s and men’s earnings to each other, however, they compared sector differences in earnings for these genders.

According to them, men in all areas of Finland earn more in the private sector than in the public sector. In South Carelia, men in the private sector earn about 1 % more. In Uusimaa, the difference is 10 % in favor of men in the private sector. 

Women, instead, tend to make more in the municipal sector. In the municipal sector, they make 1 – 5 % more than in the private sector. In Pirkanmaa and Uusimaa, however, women in the private sector make more than women in the municipal sector. Again, the difference is between 1 and 5 %.

Interestingly, they were able to show that women’s and men’s skills and expertise are valued differently in different parts of the country. 

In some areas of the country, women in the municipal sector have higher earnings for their characteristics than they statistically speaking should. In other words, the municipal sector values their characteristics more than the private sector in the same area. 

On the other hand, in some areas of the country, men in the municipal sector have lower earnings for the characteristics than they statistically should. This means that compared to men with similar characteristics working in the private sector, these men in the municipal sector are taking a hit financially. 

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