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The following OECD assessment and recommendations summarise chapter 5 of the Economic survey of Finland published on 3 June 2008.
Greater labour market flexibility would allow the economy to respond better to the pressures stemming from globalisation
Finland has enjoyed a period of strong labour market performance in recent years, with robust employment growth and steadily declining unemployment. However, further progress in dealing with the ongoing restructuring associated with globalisation require decisive reforms to labour market institutions. Raising wage flexibility should be a priority. Finland’s wage negotiation framework needs urgent reform to ensure that outcomes more closely reflect productivity developments at the firm and industry level. Future rounds should continue to be negotiated at a decentralised level and the process of determining a greater proportion of wage increases at the firm level should continue. Further de-synchronisation of negotiations across industries should also be encouraged. Opting out of collective agreements should be made easier, and the government should canvass the costs and benefits of eliminating the current practice of extending by legislation virtually all collective agreements to all firms. Finland is increasingly facing skill shortages and the time to fill job vacancies is lengthening, particularly in buoyant regions of the country. This is coupled with high unemployment rates in other regions, pointing to a low level of inter-regional labour mobility. Legal requirements for geographic (and occupational) mobility of the unemployed should be tightened, including real sanctions, and enforcement should be stepped up. In addition, subsidies directed at assisting inter-regional mobility should be rebalanced. Those that are found to be the most effective should be increased while others (such as the second residence subsidy) should be abolished.
More needs to be done to raise employment, particularly among older workers, those with disabilities, and young people
Finland’s population is one of the most rapidly ageing in the OECD and the labour force is expected to start declining by 2010. The resulting fall in employment and growing dependency ratios threaten the sustainability of the Nordic model. A number of policy changes are needed to raise labour market participation:
While the full-time working culture should be generally maintained, greater part-time participation should be facilitated for older people, those on disability pensions, and women with young children. For example, old-age and disability pension rules should be made more accommodating of part-time work and inflexibilities in child care arrangements addressed.
The interaction between the tax and benefit system should be fine-tuned to raise incentives to find work, participate more intensively in work, and to progress in work. This is likely to require a reduction in some benefit levels.
Higher labour force participation needed for the old and young
Participation rate, 2006
Note: The shaded area shows the area between the highest and lowest participation rate for each age group over all OECD countries.
Source: OECD (2008), Labour Force Statistics – online database (January).
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:
For further information please contact the Finland Desk at the OECD Economics Department at email@example.com. 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.