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Table 15. Recommendations for further structural reform and actions taken

Table 15. Recommendations for further structural reform and actions taken

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OECD Economic Surveys: Finland



94



Table 15.



Recommendations for further structural reform and actions taken (cont.)

Based on previous and current Surveys and action taken



Previous and new recommendations



Make active labour market programmes more effective

Pursue better job counselling, for instance, reach the

target of one contact per month with every unemployed

person. Consider going further with the introduction of

a general contestable placement market.

Reduce the number of subsidised jobs offered by local

government.

Step up ALMPs for older workers. Apply sanctions in

case older unemployed refuse training or a suitable job.

Evaluate the effectiveness of all active labour market

programmes and end those with poor results. Given

limited effects, an overhaul of some ALMPs is needed.

Expose the public employment service to competition

as successfully done in other OECD countries.

Increase employment and labour cost flexibility

Reform employment protection and working time

legislation to encourage job creation, especially by small

and medium-sized enterprises.

Support greater wage differentiation in wage

agreements, to promote the employability of low-skilled

workers, while maintaining moderate average wage rises.

Improve labour force skills and competencies

Ensure that education and training meet evolving needs

of labour market.



PRODUCT MARKETS

Enhance product market competition. Strengthen

competitive forces by reforming the Finnish competition

authorities. The enforcement capabilities of the Finnish

Competition Authorities should be strengthened.

Examine scope for completing privatisation of partially

privatised state enterprises to increase efficiency.

Place full privatisation of most state-owned companies

on the agenda and strengthen the impact of competition

principles by organisationally separating the

government’s role as regulator from its role as owner.

Promote genuine level playing fields in the energy

and telecommunication markets. Stimulate competition

by development of alternative networks such as cable

television network for telecom services.

Promote genuine level playing field in the postal market.

Review the universal service obligation in the postal

market.

Reduce agricultural subsidies.



Actions taken since previous Survey



The contacts are made more efficient by

increasing co-operation between social and

labour administration through an experiment

that is taking place in 2002 and 2003.

The number of subsidised government jobs

has been reduced and those in the private

sector raised.

National Programme for Ageing Workers has

helped in raising participation.

Evaluations have been carried out, but there

was little change to the ALMP schemes.

The pilot reform started at the beginning

of 2002.

No action.



Wage increases have remained moderate,

but the labour cost dispersion continues

to be very compressed.

Finnish students have received very high

marks for their educational achievements

in international comparison, but studies still

take too many years compared to other

countries.

The Market Court has replaced two existing

agencies.



Following the widening of the privatisation

mandates in 2001, little progress has been

made.

A separation of the government’s role as

owner and regulator is under consideration.



The Finnish Competition Authority has

launched various actions in the two sectors.



No action.



No action.



© OECD 2003



Policies to boost potential output growth



Table 15.



95



Recommendations for further structural reform and actions taken (cont.)

Based on previous and current Surveys and action taken



Previous and new recommendations



Actions taken since previous Survey



FINANCIAL MARKETS

Enhance supervision. Merge the Financial Supervision

Authority and the Insurance Supervision Authority.



Enforcement powers of the Financial

Supervision Authority have been

strengthened. The government decided

against a merger of the two authorities.

Raise competition among employment pension insurers. Various proposals to raise competition exist.

TAXATION

Broaden the tax base on personal income and reduce

statutory rates.

Cut social security contributions especially

for the low-paid.

Remove the age-dependency of social security

contributions. Reduce tax incentives for people

to retire early.

Keep the capital/corporate income tax rate competitive.

Consider reducing imputation credit for dividends.

SUSTAINABLE DEVELOPMENT

Systematic evaluation of sustainable development

is needed.

Increase the cost-effectiveness of environmental

measures by a greater use of economic instruments.

Consistency between sectoral and environmental

policies should be improved.



Source:



Statutory rates reduced somewhat.

Social security contributions will be raised

in 2005.

No action.



Proposals by a Working Group on taxation

go in this direction.

No action.

No action.

No action.



OECD.



Although there is much discussion about its potential, at present biotechnology

accounts for no more than about 10 per cent of R&D spending, even though there

are claims that the size of the industry is nevertheless relatively large compared

with that in other European countries.83 In October 2001 a network was established

including all ministries with the aim of tackling biotechnology issues in science

and innovation but also industry, environment, agriculture and forestry, health and

trade policies.

A feature of knowledge-based industries is rapid innovation with the implication that the competitiveness situation of particular firms can also change very

quickly. There may be little policy-makers can do to prevent this, but they can provide the general economic framework conditions to foster rather than inhibit innovation. While such conditions are clearly generally favourable in Finland, the single

most important weakness is the relatively high taxation of labour, which reduces

Finland’s attractiveness for international investors and highly-skilled personnel,

thus weakening its competitiveness as a centre for high-tech industries.



© OECD 2003



OECD Economic Surveys: Finland



96



Figure 24. Finland’s productivity compared with Sweden and the euro area

GDP in constant prices per employed person, percentage growth



6



6



5

4



5

FINLAND

(average 2.6%)



4



Sweden

(average 1.8%)



3



3



2



2



1



1

Euro area

(average 1.5%)



0

-1



1980



82



84



86



88



90



92



94



96



98



0



2000



02



-1



Source: OECD.



Productivity growth has increased in some industries, which typically

make intensive use of ICT. In particular, productivity growth in banking and insurance has been rapid,84 with Finland being one of the leading countries for Internet

banking. The greater part of the weaknesses in Finland’s productivity probably

lies in the sheltered sectors. Productivity growth in the public sector is apparently

very low but this is because the national accounts measure value added using

input indicators. Nevertheless, Statistics Finland has been quantifying output and

productivity in the public sector using alternative output-based measures along

the lines being advocated by Eurostat,85 and for the most part these also indicate

a poor performance. With population ageing the productivity performance of the

public sector – particularly in areas such as health and social work – will become

increasingly important to the whole economy. Indeed recent work by the Bank of

Finland suggests that a modest but sustained improvement in the productivity

performance of ½ per cent per annum in the ageing-related public services could

outweigh the effect of the recent pension reform in improving long-term finances

(Kinnunen, 2002).

Looking forward, the strength of Finland’s productivity looks set to

continue to rely heavily on the manufacturing sector and for the immediate future,

the successful roll-out of UMTS (3G) is crucial (Box 9). As with all new products

there is uncertainty as to the demand and optimal pricing strategy for UMTS products and the prices set for individual services, such as e-mail, will probably



© OECD 2003



Policies to boost potential output growth



97



Figure 25. Labour productivity by sector

Value added (in constant 1995 prices) per hour worked, annual percentage change,

1995-2001



Electrical and optical equipment

Financial intermediation and insurance

Electricity, gas and water supply

Transport, storage and communication

Wood and wood products

Agriculture, forestry, fishing,

mining and quarrying

Food, drink, tobacco, textiles and leather

Pulp, paper, publishing and printing

Trade, repairs, hotels and restaurants

Fuel, chemicals, rubber, mineral products

Machinery and equipment, transport

equipment and n.e.c.

Total (2.6%)

Basic metals, fabricated metal products

Administration, social security,

education, health and social work



Total, excluding all

manufacturing (1.7%)



Construction

Real estate and business activities



-3



0



3



6



9



12



15



Source: Statistics Finland (2002), National Accounts 1993-2001 and OECD.



require refining and adjustment as telecommunications companies discover the

true nature of demand. A further complication is the threat of competition from

wireless local area networks (WLANs).86

Policy towards R&D

Government policy towards R&D has a number of commendable features.

As a general rule the policy approach has been to facilitate private sector R&D and

for this reason the government has largely avoided the risks entailed in a strategy

of “picking winners” backed up by large-scale public funding.87 Although government-



© OECD 2003



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