War, Inflation, and Wages: The Labor Market in Finland, 1910-1925

Sakari Heikkinen

Abstract


The First World War was an immense economic shock also for the Finnish economy. As the war began, Finland, as the Grand Duchy of Russia, was cut off from its main export market in Western Europe. During the first war years, however, Russian war-related demand boosted Finnish exports and industry (metal and textiles). This boom ended in bust after the Russian revolution. Furthermore, the Finnish Civil War in 1918 aggravated the crisis. The peg of the Finnish currency markka to the ruble (until 1917) and a deficit in state finances fueled inflation: the price level increased about elevenfold before the markka was stabilized in the early 1920s. Because the labor movement lost the civil war, its political position was rather weak after 1918. This paper analyzes these turbulent years from the viewpoint of the labor market in examining the development of nominal and real wages of manufacturing workers, focusing on the four main industries: sawmill, paper and pulp, metal and textile industries. We show that the asymmetrical shocks they faced caused great variation in their wage and employment development. A comparison with Sweden, France, the United Kingdom, and the United States shows that the relative position of manufacturing workers (real earnings/real GDP per capita) developed more favorably in the deflation economies (Sweden, the UK, and the USA) than in the inflation economies (Finland and France).


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