Nobel Prize Winner Slams Finnish Wages for Being 'Too High'

According to the economist, inflated salaries made Finnish labor uncompetitive and inhibited economic development. In a comment to Finnish newspaper Ilta-Sanomat, ahead of formally receiving his Nobel award, Bengt Holmström ventured that protectionist ideas, which are rapidly gaining popularity among politicians, may further impede the growth of the Finnish economy. Holmström stressed that Finland is in effect and export-oriented company, which is largely dependent on the world market. However the economics professor pointed out that he was not advocating salary cuts across Finland.

Earlier this year, Statistics Finland reported that the average monthly salary for full-time workers in the country has grown by €100 ($108) since 2013, reaching €3,300 ($3,600). Additionally, a correlation between the level of income and education was reported. An average Finnish PhD reportedly earns €4,900 ($5,280), against a monthly salary of €2,600 ($2,800) for people with only secondary education.

A native of Helsinki, Bengt Holmström, who is a former director of Nokia, has been living in the US for about 40 years, yet remains a Finnish citizen. Today, he is an economist at the Massachusetts Institute of Technology. Holmström rose to fame due to his theory of developing contracts for top managers, in a bid to achieve better performance.

​Holmström's "informativeness principle" is a model for how the CEO's contract should link their pay to information relevant to their performance, after due regard has been paid to weighing risks against incentives. For this theory, Holmström was awarded the 2016 Nobel Prize in Economics together with fellow economist Oliver Hart. This award is of particular importance today, given the international debate about excessive remuneration packages given to top managers and board members.

Previously Holmström criticized the Finnish economy for its lack of private capital and excessive interference from government officials. According to Holmström, private entrepreneurs are more effective than officials in handling businesses and creating new jobs, whereas the state's role should mostly focus on providing infrastructure and an appropriate microclimate.

Remarkably, Holmström also criticized the single European currency, which according to him "inhibited Finland's development." According to him, the downturn in the world economy had a negative impact on Finland due to its pronounced export orientation.