Main findings and recommendations from the 2016 OECD Economic Survey of Finland

1. www.oecd.org/eco/surveys/economic-survey-finland.htm
@OECD
@OECDeconomy
2016 OECD ECONOMIC
SURVEY OF FINLAND
Mari Kiviniemi
Deputy Secretary General
Helsinki, 28 January 2016

2. The economy is weak
2
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
3
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
4
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
5
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
6
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.
7

8. 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. Mann
Chief 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.
9

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.
10

11. The Good News: Well-being remains high
11
Source: OECD Better Life Index 2015 database.
Healthstatus
Jobsandearnings
Housing
Personalsecurity
Work-lifebalance
Civicengagement
andgovernance
Income
Environmental
quality
Educationandskills
Subjectivewell-
being
Socialconnections
Countryrankings
20% top performers 60% middle performers 20% bottom performers Finland

12. The Good News: Income inequality is low
12
Source: OECD Income Distribution and Poverty database.
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
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
ISR
USA
TUR
MEX
Gini coefficient post taxes and transfers, 2012 or latest year available

13. THE CHALLENGES
ARE THEY DIFFERENT?
13

14. The economy is weak
and Finland is in a worse situation
14
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 falling
similar to Euro area, but not Sweden
15
Source: OECD Economic Outlook database.

16. Electronics and forestry pull down GDP and
weaken participation in GVCs
16
Source: OECD TiVA database.

17. Economic weakness in Russia further
depresses exports
17
Source: UN Comtrade database.

18. Falling manufacturing exports are not
compensated by services
18
Source: OECD Main Economic Indicators database.
Current account balance

19. Labour productivity growth has stalled
but this is a common trend
19
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
20
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 productivity
and Finland faces a bigger challenge
21
Source: OECD Productivity and Economic Outlook databases.
80
90
100
110
120
130
2000 2002 2004 2006 2008 2010 2012 2014
2007=100 Labourproductivity and wages
Labour productivity
Wage rate
80
90
100
110
120
130
2000 2002 2004 2006 2008 2010 2012 2014
2007=100Unit labour cost
Finland
Sweden
Germany
Euro Area

22. Employment is low
and Finland compares poorly to other Nordics
22
Source: OECD Labour Force Statistics database.
Employment rate difference to the Nordic average, 2014
-25 -20 -15 -10 -5 0 5
Percentage points
Women
-25 -20 -15 -10 -5 0 5
Age 15-19
Age 20-24
Age 25-29
Age 30-34
Age 35-39
Age 40-44
Age 45-49
Age 50-54
Age 55-59
Age 60-64
Age 65-69
Age 70-74
Percentage points
Men

23. Government spending as a share of GDP is
the highest in the OECD
23
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
DEU
ISL
NOR
NLD
PRT
GRC
SVN
HUN
ITA
AUT
SWE
BEL
DNK
FRA
FIN
% of GDP% of GDP
2014

24. REVIVING PRODUCTIVITY
24

25. Multifactor productivity in Finland:
from outstanding to under-performing
25
Source: OECD Productivity database.
-2 -1 0 1 2 3 4 5
Italy
Spain
Denmark
Portugal
Belgium
New Zealand
Switzerland
Netherlands
Japan
Australia
Canada
France
Germany
United Kingdom
Austria
Sweden
Ireland
Finland
United States
Korea
Average annual growth, %
1997-2007
2007-2013

26. Catching up with the frontier:
Finland has better framework conditions than most
26
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 matching
Finland could do better on market regulations
27
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
28
Source: OECD Product Market Regulation database.
2013

29. Regulation tightness varies across sectors
Finland more regulated than best performer
29
Source: OECD Product Market Regulation database.
2013
Intl trade e-commerce

30. Young SMEs and job creation
Finland situation needs to improve
30
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
31Source: 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 Universities 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.
32

33. BOOSTING EMPLOYMENT
THE BIGGEST CHALLENGE
33

34. The tax wedge on labour
Finland’s is high, but similar to other Nordics
34
Source: OECD Taxing wages database.
2013

35. Unemployment benefits
Finland’s taper much more slowly
35
Source: OECD Tax Benefits Models.
2013

36. Activation policies
Finland needs to step-up to be similar to other Nordics
36
Source: OECD Labour Market Statistics database.
2013

37. Disability and unemployment benefits
Promote early retirement; new policy opens new route
37
Source: Finnish Centre for Pensions database.
New retirees aged 50+ by type of pension

38. Compressed wage distribution
reduces employment for the low-skilled
38
Source: OECD Skills Outlook 2013.

39. A generous home-care allowance
reduces work incentives of young women
39
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
40
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.
41

42. Meeting the Fiscal Challenge
42
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 reform
Structural reforms Fiscal consolidation (€4bn 2016-19)

43. More Information…
www.oecd.org/eco/surveys/economic-survey-finland.htm
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43
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