|
Contents | Executive summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise chapter 1 of the Economic survey of Finland published on 3 June 2008.
Contents
The Finnish economy is generally well placed to benefit from the opportunities of globalisation
A number of features of the Finnish economy place the country in a good position to benefit from the opportunities of globalisation; these include openness to international trade and foreign direct investment, a high education level of the population, and a strong innovation record. Indeed, top Finnish firms, such as Nokia, have been flexible and innovative in taking advantage of these opportunities through outsourcing and specialisation. Moreover, the government plays a key role in easing the pain that economic restructuring can involve; the tax and benefit system facilitates a significant redistribution of the benefits of globalisation and social safety nets provide support for those who lose their job.
But wage inflexibility, poor labour mobility, and other policies impede the efficient allocation of resources
The low-tech segment of industry, however, remains sizeable. Intensifying competition from lower-cost countries has contributed to a number of plant closures in the pulp and paper industry, and even in the successful telecommunications industry the composition of output has changed. Rapid reallocation of resources is a consequence of globalisation and technical change, emphasising the importance of economic policies that make it easy for firms to adopt new production techniques and that facilitate the movement of production factors from declining sectors to vibrant ones. Unfortunately, labour market institutions do not provide sufficient flexibility. Job demarcation in traditional industries remains too rigid and there is little wage flexibility, while unemployed workers have only weak incentives to move to a different part of the country for work. As a result, labour shortages are rising, despite a still high level of unemployment. In addition, the turnover of firms is quite low, suggesting that business conditions may not be conducive to entrepreneurialism and the diversification of output into new activities. These problems are exacerbated by some regional development policies which support employment in low-density regions at the expense of agglomeration. National support to agriculture is very high, for example, and should be reduced, to assist the reallocation of resources to sectors with better growth potential. A more transparent and better-targeted approach should be used to address regional development needs.
Finland still specialises in many low-growth sectors
Per cent of total value added
1. 2002 for medium-low and low technology manufactures in Sweden and for all three sectors in Ireland.
Source: OECD (2006), STAN Indicators database, www.oecd.org/sti/stan/indicators.
Sustaining the Nordic model will require higher employment, a better tax mix and more cost-effective public spending
The use of collective mechanisms for risk sharing – a key feature of the Nordic model – has made it easier for Finnish citizens to embrace both globalisation and competition. The tax burden is generally high, although within the group of Nordic countries, Finland has a relatively low overall tax burden and social expenditure, and public spending is lower than in many other European countries. Even so, the tax and welfare systems have generally ensured that the winners from structural transformation have shared their gains to some extent with the losers. Moreover, the composition of public spending has tended to support high employment levels, such as through the provision of affordable childcare and early education. Nevertheless, income inequalities have been rising, and unemployed households remain vulnerable. Unemployment remains high and there are a number of areas in which the tax and welfare systems distort economic choices. The challenge for Finland is to modify the existing system so that it better encourages efficiency and sharpens labour market incentives, without losing the benefits of redistribution and social support. Given the ageing population and the need to lift employment rates, it is also worrying that many graduates do not enter the labour market until their late 20s. Taxation of labour is currently too high, particularly given the increased mobility of jobs and people that globalisation implies. In this context, the sustainability of the Nordic model will require significantly higher employment, more efficient taxation and more cost-effective public spending.
Other Nordic countries lead the way in many areas
The best country score is bolded in each case
1. The 2007 NAIRU figure for Finland is an Economic Outlook 83 estimate.
2. On a scale of 0 (where no one is subject to the rigidity) to 1 (where all workers are potentially affected).
3. A lower score represents less restrictive regulations.
Source: OECD, Economic Outlook 82 database and Economic Outlook 83 database; OECD, Employment Protection Legislation database; OECD, Product market regulation database (www.oecd.org/eco/pmr); OECD (2006) Employment Outlook; Dickens, W. et al. (2006), “The Interaction of Labour Markets and Inflation: Micro Evidence from the International Wage Flexibility Project”, www.brookings.edu/papers/2007/02_labormarket_dickens.aspx.
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.
-
Non-subscribers can purchase the PDF e-book and/or paper copy via our Online Bookshop
-
-
Government officials with accounts ( subscribe) can go to the "Books" tab on OLIS
-
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.
|
