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Second round of labour market reforms needed, says employer think-tank

Etla researchers say Finland's next government may have to make painful decisions if it hopes to reach an employment rate of 75 percent.

Suomen ainoa sillitehdas työllistää vakituisesti noin 12 työntekijää.
Some 40,000 new jobs would have to be created to reach the target. Image: Minna Rosvall / Yle

The employer organisation think-tank Research Institute of the Finnish Economy, or Etla, says the employment rate target of 75 percent that many newly-elected politicians are touting cannot be achieved without substantial labour market reforms and wage policies that support international competitiveness.

Etla's CEO Aki Kangasharju says that employment levels will not exceed 72.6 percent without major structural changes.

"We are basically talking about a Competitiveness Pact 2.0. It'll be hard to push through politically, but it would be the least painful way to create more jobs," he says.

Outgoing Prime Minister Juha Sipilä's first labour-cost-reducing pact was agreed upon in 2016. After more than a year of negotiations – and Sipilä's threats to withhold tax cuts if he didn't succeed – groups representing over 85 percent of Finland's workforce agreed to the savings plan. Among other things, it required workers to increase their time on the job by 24 hours a year and cut the holiday pay of public sector workers by 30 percent.

Kangasharju says the second round of the labour market reform would have to resemble the first, and would include pay freezes, longer working hours and more cuts to holiday pay. It claims the move would create between 20,000 and 36.000 new jobs. In order to reach an employment rate of 75 percent, 40,000 new jobs would have to be created.

Other measures that Etla proposed included tightening pension terms and conditions, shortening the maximum child care duration, and doubling the amount of income retirees can earn each month without jeopardizing their pension payments.

Committed to creating jobs

Elina Pylkkänen, director of the Labour Institute for Economic Research, the corresponding research institute linked to Finland's trade union confederations, does not care to speculate on a new round of the competitiveness pact. She said that her organisation thinks the answer to improving employment can be found by reforming Finland's family leave policy and increasing retirement age.

"Up to half of all new retirees leave working life reluctantly. This is something we must pay attention to. We should come up with incentives to encourage people to extend their careers even longer into old age. People who have already retired could also be coaxed back to work," she says.

Pylkkänen is optimistic about the incoming government's ability to improve Finland's job market.

"The way I see it, there's a shared understanding about many political objectives, such as improving employment levels. So now it's simply a matter of finding the right methods and financing to make it happen," she says.

A recent assessment of the activation model, a punitive model meant to activate the jobless introduced by Sipilä's government, found that most employment centre experts and supervisors would do away with the model entirely. Only one in 10 respondents to the May survey said they believed the activation model helped jobseekers to find work.

Social Democratic Party leader Antti Rinne, who is currently steering efforts to form a new cabinet, has suggested that he might seek to end the controversial programme as part of the new government's agenda.

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