Comment for professor Torben Andersen

Director Olli Koski

Economic Policy Council seminar 24th January 2017

Wage setting and macro productivity improvements – traditional view

24.1.2017 Ministry of Economic Affairs and Employment of Finland • www.tem.fi 2

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Productivity, wage

€/h

Min. wage

Firms

Active labor market policy

Rather than try to protect existing industries/companies, this policy

aims at speeding up structural changes

Under stress

Have means to expand

This traditional view has merits, but needs updating

• Variation between firms, even inside one particular industry, is greater than before

• Globalisation and technological change create larger distinctions between winners and losers

• The labour market is becoming more polarised and many are skeptical about active labour market policies

• Moving up the productivity ladder has proven to be impossible for many people who have been hurt by layoffs

• New technologies, global value chains and evolving division of labor increase the possibility of disruptive shocks

• Even high productivity industries can face sudden shocks (ICT)

24.1.2017 Ministry of Economic Affairs and Employment of Finland • www.tem.fi 3

Key aspects for wage-setting

• Macroeconomic resilience: how to adjust to shocks more quickly

• Competitiveness = Employment

• Room for local level bargaining and flexibility

• Facilitate decent employment for vulnerable groups

24.1.2017 Ministry of Economic Affairs and Employment of Finland • www.tem.fi 4

The Finnish Model – What the social partners could consider

• Macroeconomic resilience • Develop workable practices concerning buffer funds and social security contributions

• Export-led pattern bargaining is a good starting point • Export-competitiveness is not the ultimate goal – employment is

• Macroeconomic considerations should be taken onboard

• Commitment is key

• Develop local level negotiations • Acknowledge grown variation between firms: pay and incentive systems should be adaptable

• Crisis clauses have been introduced - maybe a joint effort to monitor their implementation and impact?

• It could be worthwhile to formulate model profit-sharing and job guarantee schemes to improve trust between local level actors

• Facilitate employment for vulnerable groups • Tackle the substantial NEET problem of Finnish young men

• Arrangements to combine work and training for youths and immigrants

• Focus on long-term unemployed

24.1.2017 Ministry of Economic Affairs and Employment of Finland • www.tem.fi 5