Social partners propose measures to combat unemployment

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In August 2002, the Finnish social partners issued their proposals for tackling unemployment, in connection with the government’s 2003 budget preparations. Various organisations have proposed, among other measures, a decrease in taxation for low wage earners. Looming in the background of the debate are the forthcoming parliamentary elections in spring 2003 and negotiations over a new incomes policy agreement in autumn 2002.

In August 2002, the Finnish social partners issued their positions on how to tackle unemployment, in connection with the government’s state budget preparations for 2003. The Finnish unemployment rate has settled around the 10% level, and reducing it has proved difficult. The weakening prospects in the telecommunications sector have reinforced the downward economic growth prognosis, and it is possible that unemployment may increase. The social partners are worried about the future outlook.

The government’s 2003 budget proposal includes tax cuts focused specially on the low- and medium-income categories. These cuts are motivated by employment arguments. At the same time, however, an increase in health insurance contributions - which are obligatory for wage earners - has been proposed. It is suspected that this will dilute the effect of the tax cuts and that the decreases will thus benefit mostly those at the upper level of the tax scale. At present (late August 2002), the various ministries are negotiating about the final budget appropriations.

Traditional viewpoints

The arguments put forward by the social partners concerning the improvement of the employment situation follow the traditional paths. The Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) and the Employers’ Confederation of Service Industries (Palvelutyönantajat, PT) have expressed their desire to have taxation decreased and to make work more attractive than at present. At the same time, they would like more privatisation of public services.

According to the chair of the TT board, Heikki Pentti, Finland's present extensive welfare model - implemented through the public sector by means of financial measures - has in many respects come to the end of the road. In his view, the impossibility of the present situation can be seen at its worst in the fact that, in the case of many jobs in the industrial and construction sectors, the 'safety net' provided by society offers a more competitive alternative: it is more profitable for people to be unemployed than to become actively involved in work.

According to the manager of PT, Markku Koponen, it is advisable to proceed rapidly with structural reforms which would promote employment and the sustainability of the public sector.

On the trade union side, the manager of the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), Matti Hynynen, believes that the employment issue should be raised to top priority in the budget talks. The decisions made in the 2003 state budget should also pave the way for the incomes policy negotiations in autumn 2002 (the current national incomes policy agreement expires at the end of the year - FI0012170F). The central goals of the next incomes policy agreement should be to improve employment, increase wage earners’ purchasing power and improve the quality of working life. Mr Hynynen considers the government's budget proposal as relatively neutral in relation to the coming incomes policy agreement talks. In his view, the focus in terms of increasing the purchasing power of wage earners should be on wage increases. Companies should avoid redundancies and lay-offs, and instead more resources should be invested in the improvement of education and 'know-how'. The budget appropriations used for employment should be increased markedly. Mr Hynynen sees the proposed tax cuts as inappropriate to the present economic situation. The improvement of public services and the wage competitiveness of the public sector should be prioritised, instead of lightening taxation.

According to the manager of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Pertti Parmanne, the current weakened employment prospects have not yet been taken into sufficient account in the budget proposal. More resources should be allocated to the education and training of the labour force. He believes that the number of on-the-job training opportunities should be increased and that the programme for raising the 'know-how' level, recently proposed by the parliamentary adult education and vocational training group, should be launched (FI0203103F).

The Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) supports a decrease in labour taxation. Its chair, Risto Piekka, states that this is required in order to ensure international tax competitiveness and an improvement in the employment situation. He believes that education and research must continue to be a focus of government activity.

The Commission for Local Authority Employers (Kunnallinen Työmarkkinalaitos, KT) is aiming for an extended and moderate incomes policy agreement in the coming talks, which would best safeguard the operational preconditions for the whole national economy and stable economic development. KT's labour market manager, Jouni Ekuri, has expressed concern about the tax solutions in the budget proposal, which would cut the income base of the municipalities.

Elections and incomes policy agreement in background

Forming a background to the current discussions are the incomes policy agreement negotiations in autumn 2002 and the parliamentary elections in spring 2003. The social partners are trying to influence the tax decisions proposed by the government. Looming on the horizon for the politicians are the parliamentary elections, in which employment appears to be emerging as one of the central themes. Paavo Lipponen, the Social Democratic Party (Suomen Sosiaalidemokraattinen Puolue) Prime Minister in the current coalition government, has already expressed his desire to establish a new 'working group for employment' with the aim of considering measures to improve employment. The Minister of the Interior and chair of the conservative National Coalition Party (Kansallinen Kokoomus), Ville Itälä, has given his support to this idea. The opposition Centre Party (Suomen Keskusta) sees the working group as an election tactic by the government, aimed at spreading the responsibility wider and putting a damper on the whole unemployment debate.

Commentary

Along with the government's 2002 budget proposals and preparations for the next incomes policy agreement, concern about the employment situation has come to the fore. Previous incomes policy agreements - covering several years each - have been referred to as 'agreements on employment', as they have focused on combating unemployment (FI0011167F). These incomes policy agreements have been considered as measures for lifting Finland from the recession of the early 1990s, which was near to driving the country to bankruptcy. The employment situation has seen great improvements during the period of the agreements. However, recent agreements were signed during a strong economic upswing, which improved the ability of the companies to make profits. The companies have prepared themselves for a possible downturn in the business cycle, while employees have become more flexible. According to a recently published research study (Labour flexibility - a factor of the economic and social performance of Finland in the 1990s, P Koistinen and W Sengenberger, Tampere University Press, 2002), employee flexibility - taking the form of fixed-term contracts, for example - has had a significant influence on how Finland survived the recession. At the same time, such flexibility has become a continuing phenomenon in the Finnish labour market.

The people who are currently unemployed are generally difficult to employ due to unsuitable or insufficient education. Furthermore, the high level of unemployment benefit and the high taxation of income from work cause unwillingness to accept work, which is a severe hindrance to solving the unemployment problem. The social partners have expressed a desire to participate in the Prime Minister's proposed working group for employment. If this happened, the results of its work could, in the best case, be significant. (Juha Hietanen, Ministry of Labour)