Finland’s proposed labour reforms risk doing more harm than good

Strikes have taken place in Finland against proposed labour reforms. Markku Sippola argues Finland’s current economic situation offers little justification for the reforms, which could have a significant impact on workers and the economy.

The Finnish government, led by Petteri Orpo, is currently implementing sweeping labour and social security reforms. These have been justified as a way to boost employment and competitiveness, but without genuine consultation with trade unions.

The changes include making it easier to dismiss employees, relaxing regulations on fixed-term contracts, making the first sick day a day without pay, reducing unemployment benefits, restricting political strikes, capping wage increases based on export sector wages and easing local bargaining. The unprecedented scale of change is reminiscent of the reforms pursued by Margaret Thatcher in the UK or by Portugal under pressure from the Troika in 2011. However, unlike those situations, Finland’s economic situation doesn’t necessitate such reforms.

The reforms have sparked massive strikes from Finnish trade unions, yet the government remains steadfast. This suggests a deliberate attempt to weaken union power. The government argues that the existing labour market structures have led to poor economic outcomes, with Finland having high unionisation rates and strong collective agreements.

While Finland has maintained low in-work poverty rates thanks to its centralised wage-setting system, employer associations see the latter as market rigidity. The government aims to not only reduce social security protections temporarily but also dismantle decades-long industrial relations structures.

Proposed changes include allowing non-union representatives for local bargaining, limiting political strikes, increasing penalties for participation in “illegal” strikes and reducing the national conciliator’s power to propose sector-level wage increases. These changes aim to undermine union legitimacy, discourage industrial actions and weaken the national conciliator’s role.

How bad is the economic situation in Finland?

The economic situation in Finland is not as catastrophic as during the COVID-19 crisis. And while the government claims its reforms will boost competitiveness and employment, evidence is lacking. Current productivity and employment rates are moderate, and government debt, while growing, is not alarming (Table 1). The government has reacted to a growing budget deficit by cutting both taxes and social security, thus eroding the tax base.

Table 1: Key indicators for the Finnish economy compared to selected OECD countries

Note: All figures from 2022. Sources: GDP per capita: World Bank; Debt to GDP ratio: World Population Review; GDP per hour worked: OECD; Employment rate: OECD.

During the COVID-19 crisis, a tripartite effort, involving the government, employer associations and trade unions, helped mitigate economic distress. However, the current government is unilaterally pushing labour market reforms without meaningful dialogue. Comparisons with past European reforms suggest potential consequences for Finnish competitiveness and employment and should raise concerns about the future impact on workers and unions.

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