The OECD Economic Surveys are prepared for each member country every one to two years where it summarises each country’s main economic challenges and provides policy recommendations.
It was Finland’s turn in December and the report had several key recommendations. Covid’s impact has been hard for all countries and Finland is no exception, but figures to date put Finland near the top of the class in the western countries for lower economic impact and deaths.
The Report, however, has set aside plenty recommendations for structural reforms that should have been in place by now since Finland is an open economy with a well functioning public sector based on relatively higher taxes than in many of our competitors. The Report points out several important challenges:
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- Finland’s export intensity is too low compared to our competitors – the volume of exports relative to GDP is much lower than Sweden, Denmark and Germany, our biggest competitors.
- We have a fast ageing population with relatively fewer people working meaning that tax revenues are falling when healthcare costs are rising rather quickly. The best ways to solve this problem is to increase the employment rate more quickly and the OECD has many excellent proposals:
- Student places need to be increased and tertiary entrance exams should be made less selective.
- We need to raise the age of retirement and keep older people at work.
- We need to improve career opportunities for women by getting men to share the burden of child care and reducing maternal parental care benefits.
- We need increase competition by reducing competitive barriers and breaking up the many oligopolies in key economic sectors.
The present government has a lot on it plate at the moment but they appear to be super active in getting things done when compared to the last three governments that have mainly been concerned with rather crude measures that have not achieved long-lasting relief.
The OECD Economic Survey on Finland is remarkable in that it appears to have highlighted rather clearly the main economic challenges facing Finland.
There can be no doubt that people are allowed to retire far too early and that older people are seeing clear discrimination at the work place. Both sides, the employers and the trade unions need a good kick up the proverbial “aaaa!” by this government. Their famous three way negotiations are tired and past the best day date.
It is the same with the universities – they just hand on to their vested interests and want to maintain a rather elitist attitudes that they only select the very best students! Tertiary education needs to be more dynamic with far more student places.
Finally of the best comments came fro Martti Hetemäki, the former head civil servant at the Ministry of Finance and no a professor at Aalto University. He commented that a small increase in productivity in public healthcare will produce a much greater improvement in the government’s budget. The sector is a huge employer and its long term impact on the public sector financial health is very meaningful.
Here is a link to the Survey – starting on page 10 there is an excellent summary – here is the OECD press release:
Finland: boost employment and productivity growth to avoid lasting scars from COVID-19 crisis
10/12/2020 – The COVID-19 crisis has plunged Finland into its deepest recession since the early 1990s even though swift government support has cushioned the shock, making for a smaller output drop than in many other OECD countries. To limit the scars from the pandemic and sustain the recovery, Finland should address underlying challenges such as boosting employment and productivity, according to a new OECD report.
The latest OECD Economic Survey of Finland notes that the COVID-19 crisis hit against a background of slowing economic growth and rising financial stability risks. The government should stand ready to provide further support to firms and workers if necessary, then focus on getting people back into viable jobs and restoring public finances. Enhancing education and skills, improving wage flexibility and reducing barriers to competition in sectors like transport, energy and retail, would help to spur productivity growth and bolster the recovery, the Survey says.
“Finland’s effective management of the pandemic is to be commended. It is now vital to support economic activity and reduce unemployment to pre-crisis levels to avoid lasting social and economic scars,” said Alvaro Pereira, Director of Country Studies in the OECD Economics Department, presenting the Survey. “Increasing the employment rate, particularly among seniors, and boosting productivity through enhancing the supply of skilled workers and reforming regulations that hamper competition, would prevent a long-term erosion in relative living standards.”
Finland’s GDP shrank by 5% in the first half of 2020, a historic contraction, but among the mildest of OECD countries thanks to targeted confinement measures that limited loss of mobility, and financial support that prevented mass bankruptcies and saved jobs. Job losses and bankruptcies will likely increase in the short run, as relief measures run out. The Survey projects Finland’s 2020 GDP will shrink by 3.3% and recover only gradually with growth of 2.1% in 2021 and 1.8% in 2022, led by private consumption and exports.
The temporary layoff scheme played a key role in protecting jobs and incomes, and Finland has long enjoyed low income inequality and relative poverty by international standards. However, 15% of workers aged 15-74 have been temporarily or permanently laid off since the crisis. The impact has been hardest on lower-income households who tend to be less able to switch to teleworking and have less secure contracts. Furthermore, some 25% of temporarily laid-off workers were not eligible for earnings-related unemployment benefits because they were not members of unemployment insurance funds. The Survey thus recommends creating a government unemployment insurance fund into which all workers – or all workers who are not members of another fund – would be automatically enrolled.
Prior to the crisis, Finland’s employment rate was already low by Nordic standards, reflecting the low employment rate of older workers. They still have access to early retirement routes, in contrast to their Nordic counterparts. Phasing out extended unemployment benefit for older workers would help to increase the employment rate of seniors.
Productivity growth is low in Finland compared with other European economies, owing to skills shortages and high regulatory barriers to competition in some sectors. The Survey recommends encouraging more school leavers to enter tertiary education by reforming the highly selective admission system and increasing the number of study places. Softening the country’s restrictive product market regulations and coordinating wage bargaining across sectors could help to gain competitiveness.
The Survey notes that recovery from the COVID-19 crisis provides an opportunity to move to a more environmentally sustainable growth trajectory compatible with meeting Finland’s demanding GHG emissions abatement targets.
