Category Archives: Eurocrisis

Finland: what is its competitiveness?

The Finnish economy is not doing well, regardless of the better-than-estimated growth. Politicians, business representatives and also labour unions talk about Finland having become uncompetitive, especially relative to Germany. This is commonly expressed through a comparision of the (Real) Unit Labour Cost developments. Especially the wage increases in the sectoral collective bargaining rounds of 2007-2008 are frequently blamed for Finland’s downfall.

Recently, I have read all kinds of literature related to trade diversification, export performance and such. It was also nice to discover this website, which can provide a wealth of insight. Basically my thought for this post is: If Finland is so uncompetitive, this must somehow show up in the data. Another issue is: Finland is frequently mentioned as very competitive and high-tech, such as in this article, but does this show up in Finland’s exports?

Regarding the first question:

Export destinations of Finland (1995-2012)

Export destinations of Finland (1995-2012)

The top export destinations of Finnish exports are Sweden, Germany and Russia (followed by the Netherlands, UK, USA and China). That is the ‘macro’ picture. If you look at those individual countries, you will see completely different ‘export packages’.

Finnish exports to Germany (2012)

Finnish exports to Germany (2012)

Half of what Finland exports to Germany is either paper goods or metal goods (this can be steel plates, zinc, nickel, iron pipes etc.). Machines account for nearly 18% of exports. These are typically machines for the German industry to make things (e.g. paper machines, processing machines, lifting machines, …) but it also includes telephones, electrical transformers and electrical motors.

For Finnish exports to Sweden the picture looks quite different:

Finnish exports to Sweden (2012)

Finnish exports to Sweden (2012)

Mineral products is the category code for e.g. oil-based products, like petroleum and refined petroleum. Chemical products also include medicaments.

Finally, exports to Russia look like this:

Finnish exports to Russia (2012)

Finnish exports to Russia (2012)

Again, chemical products, phones, computers and other machinery are a large part of exports, but Russia is also a significant market for Finnish dairy products.

To make the picture complete, I provide a list of the Top-40 export products from Finland (in 2012), in terms of export value (in US$), see below. What I find striking, is that in terms of the classification used by Cafiso (2009) there are only a few high-tech export products in the top-40,  and the top-6 features ‘traditional’ industry products, as in relatively low-tech. In terms of export value, the Finnish paper industry is far from being history.

When we go back to the first question – does Finnish uncompetitiveness show up in the data? – it depends what you look at!! Here are the graphs fror the top-3 products:

Kaolin Coated Paper exports

Kaolin Coated Paper exports

Refined petroleum

Refined petroleum

Stainless steel

Large Flat-rolled Stainless Steel

Strange to say maybe, but depending on the destination and the product Finnish competitiveness does not look too bad. Yes, the start of the Great Financial Crisis is visible in the data in 2008-2009 and from 2011 European demand for two of the three products here is in decline. But that doesn’t mean that Finland is uncompetitive – German exports of stainless steel and kaolin coated paper also declines, especially in Europe.

I think one of the most relevant lessons of these sketches is that in Finland the industries that produce the top-40 products are typically very capital-intensive.  It may be true that Finnish Real Unit Labour Costs are higher than in Germany, but does it matter? Storm and Naastepad (2015) conclude that for Germany (and other industrialized countries) trade is not very sensitive to changes in Real Unit Labour Costs.

This overview of some of the aspects of the Finnish export industries has implications for the labour market relations and what issues are emphasised (either by labour unions, the state or employers). I hope to write more about that in a later phase.

 

1
Refined Petroleum $7,571,937,492.43 10.06%
2 Kaolin Coated Paper $5,546,692,160.65 7.37%
3 Large Flat-Rolled Stainless Steel $3,188,856,875.23 4.24%
4 Uncoated Paper $1,896,120,674.00 2.52%
5 Sawn Wood $1,578,749,613.50 2.10%
6 Sulfate Chemical Woodpulp $1,554,623,680.00 2.07%
7 Packaged Medicaments $1,402,117,640.52 1.86%
8 Electrical Transformers $1,397,459,014.12 1.86%
9 Telephones $1,213,812,358.00 1.61%
10 Excavation Machinery $1,141,698,501.29 1.52%
11 Broadcasting Equipment $977,911,850.49 1.30%
12 Papermaking Machines $874,822,111.30 1.16%
13 Machinery Having Individual Functions $821,263,336.80 1.09%
14 Electric Generating Sets $809,612,169.02 1.08%
15 Medical Instruments $789,197,173.22 1.05%
16 Electric Motors $707,507,667.19 0.94%
17 Other Construction Vehicles $652,354,778.80 0.87%
18 Raw Nickel $648,832,883.17 0.86%
19 Raw Furskins $619,987,425.28 0.82%
20 Raw Zinc $602,721,172.66 0.80%
21 Uncoated Kraft Paper $596,906,691.21 0.79%
22 Stone Processing Machines $574,838,607.82 0.76%
23 Plywood $570,319,551.66 0.76%
24 Cellulose Fibers Paper $557,917,828.69 0.74%
25 Cars $529,368,714.55 0.70%
26 Refined Copper $526,786,902.13 0.70%
27 Rubber Tires $522,128,649.04 0.69%
28 Valves $512,834,686.85 0.68%
29 Lifting Machinery $500,867,236.02 0.67%
30 Ethylene Polymers $495,928,852.51 0.66%
31 Passenger and Cargo Ships $456,775,890.54 0.61%
32 Other Uncoated Paper $430,972,171.17 0.57%
33 Electric Motor Parts $428,195,865.56 0.57%
34 Low-voltage Protection Equipment $423,857,644.83 0.56%
35 Flat Flat-Rolled Steel $421,897,577.90 0.56%
36 Coated Flat-Rolled Iron $415,547,511.74 0.55%
37 Special Pharmaceuticals $415,278,848.27 0.55%
38 Computers $411,008,464.22 0.55%
39 X-Ray Equipment $404,066,790.60 0.54%
40 Tractors $401,011,453.94 0.53%
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Miksi liittokierros olisi huono?

Tässä kirjoituksessa pohdin, miksi Suomen talouden kannalta liittokierros olisi huono, kuten joskus mainittu. Mielestäni tämä on vahvasti poliittinen kysymys, jonka pitää olla avoin keskustelulle. Jotta päästään ytimeen, esitän kaksi pätkää jotka löysin viime päivien uutisista.

Yhteiskuntasopimus pähkinäkuoressa (lähde):

“Työmarkkinajärjestöiltä toivotaan esityksiä keinoista, joilla työn tuottavuus saadaan kasvuun.

Esillä on ollut muun muassa työajan pidennys, työaikapankit, työntekijöiden muutosturvan parantaminen ja yt-lain uudistaminen ja palkkojen alentaminen.

[…]

Pääministeri Juha Sipilä (kesk.) on ajanut Suomen kilpailukyvyn parantamiseen tähtäävää yhteiskuntasopimusta. Tavoitteena on kasvattaa työn tuottavuutta laskemalla yksikkötyökustannuksia viidellä prosentilla.

Ja sitten SAK:n Lauri Lyly keskitettyjen ratkaisujen tärkeydestä (lähde):

“– Olemme tehneet kolme vuotta noin puolen prosentin palkkaratkaisuja. Kilpailijamaat tekevät kahden prosentin palkkaratkaisuja keskimäärin. Se tarkoittaa, että otamme 1,5 prosenttia kiinni kilpailukykyeroa joka vuosi.”

Mielestäni nämä kaksi uutispätkää kuvailevat hyvin Suomen talousajattelun kapeutta: Suomi voi kasvaa vain viennin voimalla ja palkkakustannuksista on pelkästään haittaa yrityksille.

En tässä nyt ala esittää monimutkaisia taloustieteellisiä malleja tai selityksiä vaan haluan näyttää pari kuvaa, josta ilmenee että em. ajatustapa on ihan pölöä. Sen jälkeen päästään taas puhumaan työmarkkinaneuvotteluista.

Kuva 1 (Data Eurostat, nama_10_gdp).

BKT jne

 

 

 

 

 

 

 

Tästä kuvasta, jonka data on otettu Eurostatista, näyttää mielestäni erittäin selkeästi, että vienti ei läheskään ole ainoa tekijä Suomen talouden kasvussa. Toki se on tärkeää, ei siinä mitään, mutta jos katsoo myös kauppataseen (karkeasti toki tässä kuvassa) sitten on selvä että Suomen talous ei nouse, koska enemmän rahaa virtaa ulkomaille (tuonnin kautta) kuin tulee sisään (viennin kautta).

Tässä kuvassa olen laittanut indeksit, joten voi lähinnä nähdä miten nämä tekijät ovat muuttuneet prosentteina verrattuna edellisvuonna. Seuraavassa kuvassa samat indikaattorit euromääräisenä (miljoonina euroina, sama datalähde).

Kuva 2.

BKT2

 

 

 

 

 

 

Taas tämä antaa vaan karkean kuvan ja ei läheskään kuvailee sektoritaseet (valtio, yksityinen, ulkomaa) niin hyvin kuin esim. Jussi Ahokkaan ja Lauri Holapan kirjassa tehdään. Pointtini on vaan osoittaa, että viennin tärkeyst Suomen taloudelle on todennäköisesti paljon pienempi kuin usein luullaan.

Tähän liittyy seuraava kysymys: jos vientitulot ovat vähemmän merkittäviä Suomen talouden kasvun kannalta kuin luullaan, sitten miksi on järkevää pyrkiä mahdollisimman pieneen palkankorotukseen keskitetyssä ratkaisussa? Nyt tullaan yllä olevan ajatustavan toiselle ongelmakohdalle: palkat ovat haittatekijä yrityksille.

Toki, yrityksille palkat ovat kuluerä. Mitä suurempi osa liikevaihtoa menee palkoille, sitä vähemmän jää voitolle. Mutta ajattele näin: Suomen kansalaisten tulolähde on useimmiten palkka, ei voitto/osingot. Mitä pienempi palkka, sitä pienempi ostovoima. Yllä olevassa kuvassa nähtiin, että Suomessa kotitalouksien kulutus on merkittävä osa BKT:ta. Palkkojen kaksoisrooli unohdetaan usein keskusteluista yksikkötyökustannuksista.

Sitten tulee mieleen vielä se, että suuri osa tätä kulutusta on kotimaista, joten edelleen pätee se, että minun kulutus on sinun tulolähde. Palvelualalla on suurin osa työntekijöitä naisia (suhde toki vaihtelee alakohtaisesti), joten nyt puhutaan hyvin karkeasti (ja hieman kärjistäen) siitä, että on tehty poliittinen valinta ‘hillitä’ naisten alojen palkat vientialojen hyväksi. Miten muka kauppojen tai sairaaloiden tai koulujen yksikkötyökustannuksia vaikuttaa niiden kilpailukykyyn (jos voi edes puhua niistä näiden alojen osalta!) ? Mitä niiden kilpailukyky on? Pelätäänkö hoitoshoppailua ? Ulkomaalaiset nettiruokakaupat? Nettikoulut, ruotsalaiset koulut?

Näiden pohdintojen yhteydessä päästään sitten siihen, että pitäisikö tulla keskitettyjä ratkaisuja vai ei. Varmaan voi keksiä syitä miksi pitää olla keskitetty ratkaisu. Ongelma ei kuitenkaan ole (pelkästään) Suomen palkkatasossa teollisuudessa, vaan Saksan talouspolitiikassa. Saksa on jo vuosia harjoittanut palkkarepressiota, jonka takia enimmäkseen ‘kilpailukykykuilu’ on päässyt syntymään esim. Suomen ja Saksan välissä. Saksa on hyvin aktiivisesti alentanut sen yksikkötyökustannuksia, käyttäen hyväksi sen Itä-Euroopan työpajat (Puola, Tsekki..) ja sisäisesti Hartz-reformit, mitkä ovat kovan käden kautta hillinyt ammattiyhdistysliikeen kykyä vaatia palkankorotuksia. Mutta vastaavasti sielläkin kotimainen kysyntä on kehittynyt heikosti (ja esim. ‘työskentelevien köyhien’ ryhmä on kasvanut). Saksan yksikkötyökustannukset, tai mitä useat kutsuvat ‘kilpailukyvyksi’ on kehittynyt näin, että EK:n mukaan ei mikään yhteiskuntasopimus auttaa paikata ‘Suomi-Saksa kisan’.

Ongelma on siis mielestäni vähintään kahdenlainen:

  1. Suomen hintakilpailukyky ei riipu pelkästään siitä mitä Suomessa sovitaan vaan lähinnä myös siitä mitä on Saksassa on tapahtunut. Siinä mielessä pitää olla iloisia siitä, että Saksassa kasvaa paineet korottaa palkkoja (lähes) täystyöllisyyden vuoksi. Ja sitä paitsi, teollisuudessa palkkakustannukset ovat usein jotain 10-15% kokonaiskustannuksista, eihän oikeasti luulla että malttilisella linjalla päästään rajusti parantamaan hintakipalukykyä? Suomessa on yrityksiä jotka pärjäävät hyvin nykyisellä palkkatasolla (esim. Wärtsilä, Kone, Konecranes..). Se on ehkä eräänlainen keppihevonen mutta Suomen teollisuuden pitää kilpailla laadulla ja innovaatiolla, ei hinnalla. Emme täällä voi kopioda Saksan mallia. Ei täällä ole mitään ‘Hinterland’ missä voi teettää osia. Ei täällä (onneksi vielä) ole matalapalkkatyö, mitä auttaa vientifirmojen kustannuksia. Tärkeintä kaikista – emme kai halua tehdä Suomesta työintensiivinen talous? Suomi on nimenomaan hyvä siinä fyysisen pääoman puolella.
  2. Kun valtaosa ihmisiä Suomessa on töissä siellä, missä ei viedä eikä tuoda mitään ja koko kilpailukyky-ja-tuottavuus-keskustelu tuntuu vähintään oudolta, miksi niidenkin ihmisten pitää myös saada maltilliset palkankorotukset – ostovoimahan ja kotimainen kysyntä pienenee – ? Onko se eräänlainen käänteinen solidaarisuus? Vai onko se osoitus siitä, että Suomen työmarkkinajärjestelmässä vaan on vientialojen blokki, missä on työnantajat ja työntekijät ja joiden preferenssit ja ajatustavat ovat edelleen valta-asemassa? Tässä mä näen (taas hieman kärjistäen) kovan ristiriidan: naisvaltaiset alat työllistyvät paljon enemmän ihmisiä kuin pääomaintensiiviset miesvaltaiset teollisuusalat, mutta ne edellämainitut eivät pääse esittämään vaihtoehtoista poltiiikkaa. Se olisi mielenkiintoista tutkia miksi.

Nämä ajatukset antavat minulle seuraavan johtopäätöksen: keskitetty ratkaisu on hyvin poliittinen päätös, ja siinä on selkeät voittajat ja hävijät. Liittokierros on, kuten monesti tutkimuskirjallisuudessa kuvailtiin, vaarallinen siinä mielessä että usein tulee isommat palkankorotukset. Sen voi varmaan jotenkin järjestää niin, että olisi eri tapaa neuvotella sektoreittain kuin ‘kaikki peräkkäin’ tms. Mutta mielestäni kotimaisten sektoreiden osalta liittokierros ei ole välttämättä katastrofi. Ei myöskään työnantajille. Ne kuitenkin haluavat että me ostetaan heidän tuotteet.

Tulevaisuudessa pohdin tätä asiaa enemmän.

 

 

Interviewed for Investment Perspectives on Share Radio

On Wednesday, I was interviewed by Robert van Egghen of Investment Prespectives on Share Radio. It was my first radio interview ever, and probably as a result of my overly winding answers, only a small section of the material was used. But I think the whole section, which considers the state of the Finnish economy and whether Finland would leave the Euro is very interesting.

You can listen to the segment here.

Below I have copied the answers I actually prepared based on the questions I received. Note that while many economists seem to think Finland has structural problems (as in neoliberal structural i.e. labour market negotiations, unions, collective agreements, welfare state..) I think the decline in (labour) productivity signifies another kind of structural issue: the Finnish economy has been changing rapidly, in that there has been a significant decline in industrial output. So in my view, this lower productivity level shows more a change towards services than any kind of “structural” problem like too high labour costs.

– Why is Finland’s economy struggling?
A combination of deficient demand in the Eurozone, sanctions on Russia and austerity politics domestically which squeeze purchasing power and increase unemployment. Nonetheless, there are export sectors which perform well, such as the board and pulp industries and recently the shipbuilding industry has gained important new orders. Also companies like Kone, escalators and elevators and Wärtsilä, ship engines and other marine technology perform well. The impact of the sanctions on Russia is fairly recent and affects mostly food and dairy producers.

– Problems in export market:
Demand for Finnish goods. The story of Nokia is well-known and as a result many jobs were lost in the IT sector and related sector, although many ex-Nokia employees are regrouping into new small companies. As for the pulp and paper industry: demand for paper is declining for a long time already but demand for pulp and board is still booming, thanks to the Asian markets.

On a more basic level, the problems relate to the construction of the EMU and in particular the policies of Germany. German wage repression has led to a large gap in e.g. unit labour costs and relative competitiveness, which the Finnish economy can’t repair. The German policy has been clearly deflationary and Germany has undershot the inflation norm of 2% for many years. This has harmed many countries in Europe, not only Greece and Spain, but also the Netherlands and Finland. If Germany hadn’t been so obsessed with a trade surplus, the current problems of “healthy” European countries would have been far less. Here you can see that the Euro is very much a fixed exchange rate system, with all the problems that follow from it.

– Productivity levels in Finland
Many sides to this question. On the one hand, you can see the effects of deficient demand – after all, if companies sell less with the same personnel, productivity declines. On the other hand you can observe in the declining or low average productivity a restructuring of the economy. Labour productivity in industry is always much higher than in services and for example in the Finnish paper industry labour productivity is nothing short of astonishing. But with a decline in industry and also slight decline in services sector the average productivity will get lower. Especially since construction is still fairly strong in Finland for the moment, which is a low productivity sector. However, that may change because the application for building permits seems to be on the decline.

– Finland under the radar in the Eurocrisis
Finland has slipped under the radar because until recently it had a triple-A rating and also consistently scores highly on competitiveness indexes. Furthermore, Finland has been rather tough on Greece. So people may get the idea that if only Greece is more like Finland, than it would be in a better shape. Most importantly, Finland, as a Nordic country, simply doesn’t fit in the ‘lazy Southern Europeans’ -explanation of the eurocrisis.

– Fixit?
One politician is campaigning a so-called citizen’s initiative for a referendum on Finnish Euro membership. That apparently has collected many signatories already. The question is who would benefit from Fixit. The export industries may benefit although it is not quite clear cut that a new Finnish currency would devalue against the Euro. That is perhaps the idea. But like Greece, a devaluation of the currency would trash the purchasing power of citizens, which is problematic because Finland does import a lot of food products. Also, it would eliminate the AA-status of Finland in all likelyhood. It is clear that the Euro is not working for Finland, but that is also partly domestic politics – Finnish politics insists on austerity as the recipe to get the economy going. But I think the Finnish economy and Finnish citizens will have to endure a lot more hardship before exit is considered. One advantage Finland has relative to Greece is that its banks are in good shape (perhaps thanks to Finland’s banking crisis of the early 1990s).

– Scandinavian union
In a way, a currency union between the Scandinavian or Nordic countries sounds sensible, since e.g. Sweden and Finland are main trade partners in many sectors. They are potentially close to being an optimal currency area, as even labour mobility between the Nordic countries is quite good. But I think it can only work if there is also fiscal and political union, otherwise it probably will end up like the original Scandinavian Currency Union of 1873, which failed because of politics and, in the end, WW I.

– Further growth of the Finns party?
Timo Soini’s party is now in the government, and in my opinion, Soini has achieved a very big tactical win in Finnish politics by becoming Foreign Minister. It is a topic he is interested in, but most importantly, he can’t be accused (by the media or his own party-base) as implementing policies that harm the Finns Party’s voters (seeing as these are by and large the exact people who may be dependend  on social security and/or dislike austerity politics aimed at curbing the welfare state.). There are many things that may influence the future of the Finns party, but I do see potential for further growth, as long as Soini keeps the rabidly anti-immigrant wing of its party under control.

Greece, Grexit and IT issues

This post is a bit tongue-in-cheek but meant to provoke discussion. Recently, especially Naked Capitalism.com has spent attention to the practical, IT issues of a Grexit. See e.g. here and here.

Here’s a thought: with the collapse of Nokia and the withdrawal of Microsoft from some of its remains in Finland and the resulting unemployment among highly skilled IT people in Finland, why not set up a Finnish-German IT task-force to engineer a controlled exit for Greece from the Eurozone ? We could include Estonia as well, so we have two countries with very advanced netbanking society and structure. This could also include reforms of tax collection (I am very happy with the Finnish tax system, as opposed to e.g. the Dutch tax system, from a user perspective that is.)

Furthermore, Estonia has experience with cybersecurity and Finland has F-Secure, which I think is a very solid company regarding virus protection and malware detection.

Just think of it: Greece could regain freedom in a hopefully non-destructive way and Finnish IT professionals get a very complicated multiyear project. Rather than Finland exiting the Eurozone, WE CAN FIXIT!

Frances Coppola on Latvia – lessons for Finland as well!

Also in Finland Latvia is seen as an example, why a nation should implement harsh austerity (like the new Finnish government is going to). But Frances Coppola explains:

To me, Latvia resembles a puppet whose strings are controlled by large Scandinavian banks. The 2004-8 boom was caused by excessive lending by Scandinavian banks: the “sudden stop” in 2009 was caused by the failure of Scandinavian banks:the short-lived recovery was driven by Scandinavian bank lending: and the present stagnation is due to credit rationing by Scandinavian banks. Latvia is not going to experience any further recovery while its financial sector remains dominated by foreign banks who don’t want to lend cross-border. The Balkanisation of the European banking system has severe consequences for the Baltic states.

Latvia has little or no control of its monetary conditions, and now it has joined the Euro it doesn’t have much control of fiscal policy either. Its prosperity is entirely determined by the commercial interests of foreign banks and the attitude of their regulators. Is this really what the people of Latvia want?

I am really dumbfounded by the stupidity of the political class, and the apparent influence of the banks on economic policy. I will return to the lessons for Finland in more detail later, but this article on the Irish economic recovery holds some information. To wit – the choice is either to let (foreign) banks run the economy (like in Latvia) or big MNC’s (like in Ireland).

Greece and Finland in recession – Bill Mitchell discusses

From Bill Mitchell’s blog.

On Finland I want to highlight this quote, because I think this is very much what is happening in Finland, both at the political and at the public discussion level (because nearly all ‘economic wise men’ aka economists come from the same universities. Beyond that, Keynes has never gotten a foothold in Finland, I understand from all this.)

Finland, one of the fiercest supporters of austerity entered official recession. The Finnish response was they had to cut public spending harder because they would be in breach of the Stability and Growth Pact rules relating to size of the deficit and the volume outstanding public debt. These nations are so caught up in neo-liberal Groupthink that they cannot see how ridiculous their policies and supporting dialogue has become.

Finland’s secular stagnation – a small aside

Edward Hugh wrote a very insightful piece on the state of the Finnish economy, especially seen from the secular stagnation perspective. In my opinion it is a very convincing piece and leads one to seriously question current economic policies (which is also possible on other basis, but this has a longer scope fundament).

There is, however, one tiny section of the text where  I feel I have to add something. The text is:

In 2007, when the countries export-led technology industry was booming workers representatives hammered out an 8.5 percent wage increase that was implemented over two years. That deal led to an upward spiral where other industries and then the public sector pushed for ever higher compensation.

This sounds very ominous and ‘profligate’, a typical example of ‘why labour unions are bad for business’ etc.

But this is just the kind of factual reporting that needs footnotes, because otherwise the wrong lessons are learnt from it. So, here we go:

1. 2007 was the end of the final centralized incomes policy

What does that mean? Finland has a long tradition of centralized incomes agreements, which not only include wage increases but also a variety of tax issues, social security reforms and other policies (usually) meant to support the private sector. In 2007, the last centralized incomes agreement ended (its duration was 2005-2007) and the employers’ federations strongly voiced their opinion about this instrument: the TUPO was now dead, it was not of this time anymore. So, following 2007, Finland went on to have sectoral collective bargaining for the period 2008-2011. The first sectoral agreement period was 2008-2009 and in this period there was indeed the ‘spiral’ which Hugh refers to. This was to be expected though, because the empirical literature is quite clear on the fact that in sectoral bargaining the wage increases tend to be higher than at either a centralized or completely decentralized level (the Calmfors-Driffil hypothesis). I’d like to stress though, that it was the employers who wanted to move away from centralized bargaining.

The problem with all this was that the Eurocrisis hit. So, with any agreement, the wage increases would have been to high, but with a sectoral agreement even more so. Finland doesn’t have much in the vein of opening clauses in collective agreements (like Germany) so any adaptation to the detoriorating economic situation has primarily happened through lay-offs and redundancies – in the private sector, but through Finland’s voluntary austerity also very much in municipalities.

In 2009, there was a so-called social agreement, which deals with improvement in unemployment protection policies, in particular regarding temp agency work. Another aspect of this agreement was the improvement of income-dependent pensions.

More important, in 2009 there was an attempt to intr0duce a so-called wage anchor. The employers’ side set this at a maximum wage increase of 0,5% but in practice the average increase in all agreements was approximately 1%. It must be noted that some of the negotiations of wages in 2009 were the actual negotiations for the second or third year of some 2-3 year agreements. The wage anchor came from the ‘opener’ of the negotiations, the metal industry, which agreed on an general wage increase of 1% (and 0,5% individual wage increase).

After the negotiations and agreements of 2009-2010 it started to become clear that the eurocrisis hit Finland particularly hard, with its unit labour costs rapidly exceeding the German levels. So, although the employers had sworn that there would never be a centralized incomes agreement again, they negotiated – after quite some prodding from the state – the so-called Framework agreement. In this agreement it was agreed that in 2 years, the wages would increase by 2,4% and 1,9% respectively. Furthermore, the agreement dealt with a host of qualitative labour market questions (training, unemployment benefit changes for temp workers) and tax incentives (incomes tax changes, corporate tax reduction).

In 2013 the so-called Growth and Employment Agreement was concluded. This agreement focuses nearly entirely on (wage) competitiveness and thus features, over 2 years, a wage increase of 20 euros in the first year and 0,4% 12 months after that. In the present, there are discussions whether to renegotiate the agreement or keep the provision that the agreement would be valid until the beginning of 2017. This is mandated by the agreement, which states that in June 2015 the economic situation has to be evaluated to negotiate a new wage agreement for the second phase of the Growth and Employment Agreement.

So, while it is true that in the period 2007-2009 various sectors demanded high(er) wage increases that the sector that concluded agreements just before (the ‘spiral’) this did not exactly happen anymore after 2009. Although there was much discontent about the unilateral adoption of this wage anchor, which did not completely succeed either but not nonetheless introduced a significant wage moderation already. Also, it must not be forgotten that wage differences in Finland between services and industries are not trivial.

All-in-all, Hugh’s article is a very acute description of the state of the Finnish economy at the moment, but the recent developments in labour market relations are a bit more complicated than it seems.