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www.oecd.org/eco/surveys/economic-survey-finland.htm
@OECD@OECDeconomy
2016 OECD ECONOMIC SURVEY OF FINLAND
Mari KiviniemiDeputy Secretary General
Helsinki, 28 January 2016
2
The economy is weak
Source: OECD Economic Outlook database.
60
70
80
90
100
110
120
1991 1995 1999 2003 2007 2011 2015
2005=100 Real GDP
Finland
Other Nordics
Euro area
0
2
4
6
8
10
12
14
16
18
20
1991 1995 1999 2003 2007 2011 2015
%Unemployment rate
Finland
Other Nordics
Euro area
3
Export performance has fallen
Source: OECD Economic Outlook database.
70
75
80
85
90
95
100
105
-2
-1
0
1
2
3
4
5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2005=100% of GDP
Current account balance (lhs) Export performance (rhs)
1. Ratio of exports to export markets (trade-weighted average of trading partners' imports).
A decrease indicates a loss in export market shares.
1
4
Productivity needs to be revived and competitiveness restored
Source: OECD National Accounts database.
75
100
125
150
175
200
225
75
100
125
150
175
200
225
1997 2001 2005 2009 2013
Level in 1997=100Level in 1997=100
Manufacturing Business services
5
Productivity in business services has been sluggish
Source: OECD National Accounts database.
75
100
125
150
175
200
225
75
100
125
150
175
200
225
1997 2001 2005 2009 2013
1997=1001997=100 Manufacturing
Germany Denmark Finland
95
105
115
125
135
95
105
115
125
135
1997 2001 2005 2009 2013
1997=1001997=100 Business services
United Kingdom Sweden Norway
6
Boosting employment is essential
Source: OECD Labour Force Statistics database.
60
63
66
69
72
75
78
60
63
66
69
72
75
78
OECD Finland Denmark Sweden Norway
Employment rate (in %, 2014)
Employment rate (in %, 2014)
7
Key messages
o Public finances need to be consolidated at a gradual pace to preserve the incipient recovery.
o Boosting productivity growth, by improving framework conditions and supporting innovation, is necessary to raise living standards and well-being for all.
o Raising employment, through further investing in workers’ skills and enhancing labour market flexibility and work incentives is necessary to boost inclusive growth.
www.oecd.org/eco/surveys/economic-survey-finland.htm
Finland’s Challenges for Growth—Are they Different?
2016 OECD ECONOMIC SURVEY OF FINLAND
Catherine L. MannChief Economist
@OECD@OECDeconomy
9
Main Findings
o Reviving productivity and increasing employment are essential to counter a weak economy, rising public debt and the highest level of government spending in the OECD.
o Product market regulations are restrictive in retail trade, transport and construction.
o Start-up creation and growth of young firms are weak. Co-operation between business and universities is successful, but on a limited scale.
10
Main Findings (cont.)
o Labour taxation is high.
o The combination of generous benefits, long duration and late activation of the unemployed prolongs unemployment spells.
o Unemployment and disability benefits are the two main routes to early retirement. A new pension scheme with a lower retirement age for those in mentally or physically demanding jobs may have the same effect.
o The home care allowance reduces female labour force participation and enrolment in early childhood education.
o Central wage bargaining coordinates wage increases according to the needs of exporting industries, but reduces labour market flexibility.
o Narrow qualifications and a lack of foundation skills among vocational education and training graduates reduce adaptability to structural change.
11
The Good News: Well-being remains high
Source: OECD Better Life Index 2015 database.
Heal
th s
tatu
s
Jobs
and
ear
ning
s
Hous
ing
Pers
onal
sec
urity
Wor
k-life
bal
ance
Civic
eng
agem
ent
and
gove
rnan
ce
Inco
me
Envir
onm
enta
lqu
ality
Educ
atio
n an
d sk
ills
Subj
ectiv
e we
ll-be
ing
Socia
l con
nect
ions
Coun
try ra
nkin
gs
20% top performers 60% middle performers 20% bottom performers Finland
12
The Good News: Income inequality is low
Source: OECD Income Distribution and Poverty database.
0.000.050.100.150.200.250.300.350.400.450.50
0.000.050.100.150.200.250.300.350.400.450.50
DNK
SVK
SVN
NOR
CZE
ISL
FIN
BEL
SWE
AUT
NLD
CHE
HUN
DEU
POL
KOR
LUX
IRL
FRA
CAN
AUS
ITA
NZL
ESP
EST
PRT
GRC GBR IS
RUS
ATU
RM
EX
Gini coefficient post taxes and transfers, 2012 or latest year available
13
THE CHALLENGESARE THEY DIFFERENT?
14
The economy is weakand Finland is in a worse situation
Source: OECD Economic Outlook database.
60
70
80
90
100
110
120
1991 1995 1999 2003 2007 2011 2015
2005=100 Real GDP
Finland
Other Nordics
Euro area
0
2
4
6
8
10
12
14
16
18
20
1991 1995 1999 2003 2007 2011 2015
%Unemployment rate
Finland
Other Nordics
Euro area
15
Investment is fallingsimilar to Euro area, but not Sweden
Source: OECD Economic Outlook database.
16
Electronics and forestry pull down GDP and weaken participation in GVCs
Source: OECD TiVA database.
17
Economic weakness in Russia further depresses exports
Source: UN Comtrade database.
18
Falling manufacturing exports are not compensated by services
Source: OECD Main Economic Indicators database.
Current account balance
19
Labour productivity growth has stalledbut this is a common trend
Source: OECD National Accounts database.
95
105
115
125
135
95
105
115
125
135
1997 2001 2005 2009 2013
1997=1001997=100
Denmark Finland Sweden Germany
20
Productivity in business services has been sluggish
Source: OECD National Accounts database.
75
100
125
150
175
200
225
75
100
125
150
175
200
225
1997 2001 2005 2009 2013
1997=1001997=100 Manufacturing
Germany Denmark Finland
95
105
115
125
135
95
105
115
125
135
1997 2001 2005 2009 2013
1997=1001997=100 Business services
United Kingdom Sweden Norway
21
Wages have outpaced productivityand Finland faces a bigger challenge
Source: OECD Productivity and Economic Outlook databases.
80
90
100
110
120
130
2000 2002 2004 2006 2008 2010 2012 2014
2007=100 Labour productivity and wages
Labour productivity
Wage rate
80
90
100
110
120
130
2000 2002 2004 2006 2008 2010 2012 2014
2007=100Unit labour cost
FinlandSwedenGermanyEuro Area
22
Employment is low and Finland compares poorly to other Nordics
Source: OECD Labour Force Statistics database.
Employment rate difference to the Nordic average, 2014
-25 -20 -15 -10 -5 0 5Percentage points
Women
-25 -20 -15 -10 -5 0 5
Age 15-19Age 20-24Age 25-29Age 30-34Age 35-39Age 40-44Age 45-49Age 50-54Age 55-59Age 60-64Age 65-69Age 70-74
Percentage points
Men
23
Government spending as a share of GDP is the highest in the OECD
Source: OECD Economic Outlook database.
0
10
20
30
40
50
60
0
10
20
30
40
50
60
CHE
AUS
EST
USA
IRL
CAN
SVK
POL
LUX
CZE
ESP
GBR DE
UIS
LNO
RNL
DPR
TG
RC SVN
HUN
ITA
AUT
SWE
BEL
DNK
FRA
FIN
% of GDP% of GDP
2014
24
REVIVING PRODUCTIVITY
25
Multifactor productivity in Finland: from outstanding to under-performing
Source: OECD Productivity database.
-2 -1 0 1 2 3 4 5
ItalySpain
DenmarkPortugalBelgium
New ZealandSwitzerlandNetherlands
JapanAustraliaCanadaFrance
GermanyUnited Kingdom
AustriaSweden
IrelandFinland
United StatesKorea
Average annual growth, %
1997-2007
2007-2013
26
Catching up with the frontier:Finland has better framework conditions than most
Source: Saia, A., et al. (2015), "Productivity Spillovers from the Global Frontier and Public Policy: Industry-Level Evidence", OECD Economics Department Working Papers, No. 1238.
27
Labour market matchingFinland could do better on market regulations
Source: Adalet McGowan, M and D. Andrews (2015), “Skill mismatch and public policy in OECD countries”, OECD Economics Department Working Paper, No. 1210.
28
Product market regulations Finland could do better; but about on par with other Nordics
Source: OECD Product Market Regulation database.
2013
29
Regulation tightness varies across sectorsFinland more regulated than best performer
Source: OECD Product Market Regulation database.
2013
Intl trade e-commerce
30
Young SMEs and job creationFinland situation needs to improve
Source: Criscuolo, Gal and Menon (2014).
0
10
20
30
40
50
60
0
10
20
30
40
50
60
ESP NZL HUN PRT LUX NLD AUT ITA FRA BEL CAN SWE GBR NOR USA JPN FIN
%% 2001-2011
31
Business and government R&D Finland is scaling down; others are scaling up
Source: OECD, Main Science and Technology Indicators database and Statistics Finland.
90
100
110
120
130
90
100
110
120
130
2007 2008 2009 2010 2011 2012 2013
2007=1002007=100 Gross expenditure on R&D (constant USD PPP)
Germany OECD Sweden Finland
80
90
100
110
120
80
90
100
110
120
2007 2008 2009 2010 2011 2012 2013 2014
2007=1002007=100 Government-funded R&D in Finland
Total government R&D Universit ies Tekes
32
Key Recommendations on structural reforms and innovation policies to boost productivity
Streamline regulations in retail trade, transport and construction.
Shift taxes towards recurrent taxes on personal immovable property and indirect taxes.
Reinforce co-operation between companies, particularly start-ups, and universities.
33
BOOSTING EMPLOYMENTTHE BIGGEST CHALLENGE
34
The tax wedge on labourFinland’s is high, but similar to other Nordics
Source: OECD Taxing wages database.
2013
35
Unemployment benefitsFinland’s taper much more slowly
Source: OECD Tax Benefits Models.
2013
36
Activation policies Finland needs to step-up to be similar to other Nordics
Source: OECD Labour Market Statistics database.
2013
37
Disability and unemployment benefitsPromote early retirement; new policy opens new route
Source: Finnish Centre for Pensions database.
New retirees aged 50+ by type of pension
38
Compressed wage distributionreduces employment for the low-skilled
Source: OECD Skills Outlook 2013.
39
A generous home-care allowance reduces work incentives of young women
Source: OECD Survey of Adult Skills, 2012.
Employment by gender, age and literacy proficiency
40
Foundation skills are relatively low for vocational education and training graduates
Source: Pareliussen, J. (2016), “Age, Skills and Labour Market Outcomes in Finland”, OECD Economics Department Working Papers, forthcoming.
0
10
20
30
40
50
60
0
10
20
30
40
50
60
Vocational Academic Vocational Academic
Upper secondary Tertiary
PIIAC score pointsPIAAC score points
Literacy skills premium from education beyond lower secondary, 2012
41
Key Recommendations to increase employment and enhance skills
Reduce taxes on labour.
Reduce the duration of the home-care allowance.
Increase tapering of unemployment benefits and combine with early and systematic job-search and reporting.
Phase out the unemployment tunnel, tighten disability pensions and limit the new special pension scheme for those in demanding jobs.
Strengthen the state mediator and local unions to raise local flexibility in wage setting, without compromising competitiveness.
Strengthen foundation skills in vocational education and training.
42
Meeting the Fiscal Challenge
Source: OECD Calculations.
Gross government debt scenarios
0
50
100
150
200
250
0
50
100
150
200
250
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
% of GDP% of GDP
No policy action Pension reformStructural reforms Fiscal consolidation (€4bn 2016-19)
43
More Information…
www.oecd.org/eco/surveys/economic-survey-finland.htm
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