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Contents | Executive summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise chapter 2 of the Economic survey of Finland published on 3 June 2008.
Contents
Recent economic performance has been good although large wage increases pose risks to competitiveness
Economic growth was above 4% in 2006 and 2007, contributing to a further catching up in GDP per capita towards the slightly higher level of the other Nordic countries and the significantly higher level of the United States. The unemployment rate has fallen significantly in recent years to around 6½ per cent, but it still remains well above that of the other Nordic countries. It is clear that bringing about an improvement in the functioning of the labour market continues to be one of Finland’s biggest policy challenges. Against the background of rising labour shortages, the 2007-08 wage negotiations – which took place at the industry and firm level – resulted in much higher wage increases than in previous years. Since most agreements were for a two to three-year period, this will push up wage inflation not only in 2008 but also over the following two years, undermining competitiveness. In combination with slowing global demand, exports are likely to become considerably less dynamic and GDP growth could slow to 2½ per cent in 2009, with unemployment stabilising at around 6%.
Key economic indicators
1. Weighted average of Denmark, Iceland, mainland (in case of the GDP) Norway and Sweden.
Source: OECD, Economic Outlook and National Accounts databases.
Medium-term fiscal policy challenges should be addressed with further pension reform and tighter fiscal policy in the short term
Recent fiscal policy outcomes have been positive with general government surpluses generally exceeding their targets. However, demographic change will significantly alter this picture from 2010 onward. Despite significant pre-funding and a wide-ranging pension reform in 2005 that is being gradually phased in, the government expects that pension contribution rates will need to increase by 4 percentage points by 2030 to keep the pension system on an even keel. This represents a considerable increase in the labour tax wedge and, if implemented, would undermine competitiveness and limit employment growth. Instead, a key challenge for Finland is to continue to cut labour taxes, while still preserving the essential elements of social support offered by the Nordic model. To permit this, further pension reform will be needed. The main priority should be to increase the effective retirement age and fully close the unemployment pipeline, which effectively provides access to early retirement from the age of 57. In addition, study periods should be made ineligible for pension credit accumulation and the higher accrual rates for older workers should be reconsidered. The combined financial balance for central and local government is currently in surplus, but maintaining a surplus over the coming years will require a more efficient tax mix and significant further steps to raise productivity in the public sector – particularly in the delivery of municipal social services.
The dependency ratio is rising
Per cent of working-age population
Source: Statistics Finland.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Finland 2008 is available from:
- Subscribers and readers at subscribing institutions can access the online edition via SourceOECD , our online library.
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Non-subscribers can purchase the PDF e-book and/or paper copy via our Online Bookshop
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Government officials with accounts ( subscribe) can go to the "Books" tab on OLIS
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Additional information
For further information please contact the Finland Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Anne-Marie Brook, Petar Vujanovic, Marketta Henriksson and Marte Sollie under the supervision of Peter Hoeller. Research assistance was provided by Isabelle Duong.
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