Skip to content
Home » Wages are rising, but purchasing power is diverging in Finland
Articles

10.04.2026 15:16

Wages are rising, but purchasing power is diverging in Finland

The purchasing power of wage earners has increased in recent years. Nevertheless, household confidence in the economy remains weak, and growth in the service sectors has not properly taken off. PAM’s chief economist, Olli Toivanen, explains what the increase in purchasing power means – and why it does not manifest in everyone’s daily life in…

What is purchasing power?

There is a great deal of discussion about purchasing power, but what does it mean in practice?

– Purchasing power simply refers to how much goods and services households can buy with their disposable income.

– Household income includes wages, as well as entrepreneurial and capital income, social security benefits and pensions. Changes in consumer prices and tax policy also affect purchasing power.

News reporting often focuses in particular on the purchasing power of wage earners.

– When purchasing power is discussed in the news, it usually refers to changes in real earnings – that is, how earnings develop in relation to consumer prices.

General pay rises have improved purchasing power

What explains the increase in purchasing power reported in recent months?

– General pay rises agreed in collective agreement negotiations have simply increased wages more than consumer prices have risen. Other factors have been relatively minor in comparison.

In addition to wage levels, the total number of hours worked also affects the purchasing power of wage earners.

– Although the unemployment rate has increased, the total number of hours worked has remained stable. This means that the total wage sum paid to employees has grown significantly.

Why higher purchasing power does not benefit everyone

Even if average purchasing power increases, the effects are uneven. Political decisions affecting disposable income are one contributing factor.

– The overall impact of the government’s tax decisions has been quite limited, except for the highest‑income groups, whose taxes have been reduced significantly. This has increased their disposable income.

For many low‑income households, the situation is the opposite.

– The purchasing power of low‑income households has been weakened considerably by cuts to benefits such as unemployment allowance, housing allowance and social assistance.

Who benefits from increased purchasing power matters for the entire economy.

– For high‑income earners, income growth leads more to savings and investments than to consumption. For low‑income households, most purchasing power goes directly to consumption, as there is little room to save. Consumption keeps the economy moving and supports growth, especially in the service sectors.

How price changes affect households differently

Price changes also affect people differently, as household spending patterns vary.

– Last year, inflation was reduced particularly by lower costs related to owner‑occupied housing, as the prices of new homes and interest rates on loans declined. This reduced monthly expenses for households with mortgages.

– For tenants, the situation was the opposite, as rents continued to rise last year.

The recent rise in oil prices due to global political developments is first felt by motorists, but if the crisis continues, it will eventually affect the prices of almost all goods.

– Higher energy costs are passed on to transport costs and from there more broadly to goods and services. In the worst case, this can lead to stagflation, where consumer prices and unemployment rise at the same time.

Restoring household confidence in the economy

In addition to uneven purchasing power, uncertainty is currently slowing consumption. Fear of unemployment, in particular, reduces households’ willingness to spend.

– Because benefits and unemployment security have been cut, unemployment now represents a greater financial setback than before. Households prepare for this by saving more and reducing consumption.

According to Toivanen, tax cuts are not the solution to restoring household confidence.

– The most effective approach is to build trust that life will continue even in difficult times. This cannot be achieved through tax cuts, but through well‑functioning public services and adequate protection in the event of unemployment.

Text: Minttu Sallinen
Photo: Eeva Anundi

Keywords:

economy membership pay

What did you think of this content?

Read next

Search