Unemployment already below ânaturalâ level in Finland
Unemployment has already fallen below its natural level in Finland.
Economists, as a result, are looking forward to finding out if the governmentâs labour market reforms have also reduced structural unemployment or if the decrease in unemployment will slow down or end altogether after the Finnish economy has reached its cyclical peak.
Structural unemployment stands at approximately 7.5 per cent, according to the European Commission, and a t 8.3 per cent, according to the Bank of Finland. Statistics Finland on Tuesday revealed that the seasonally adjusted unemployment rate dropped to 7.3 per cent in July.
The European Commission defines structural unemployment as the ânaturalâ rate of unemployment that âthe economy would settle at in the long run in the absence of shocksâ.
âEven though itâs possible for unemployment to fall below structural unemployment during a cyclical peak, unemployment will creep up again after the peak if there have been no structural changes in the labour markets. In a way itâll return to its structural level of eight per cent,â Meri Obstbaum, a senior expert at the Bank of Finland, told Uusi Suomi on Tuesday.
The issue of structural unemployment is topical because several economists have estimated that the cyclical peak has already been witnessed in Finland.
âThe growth rate is already expected to slow down,â confirmed Obstbaum. âThe euro ar ea has already passed the cyclical peak. Finland started growing slightly later than [the euro area], but weâve estimated that the cyclical peak is right now. The growth will slow down going forward given that the external growth environment will deteriorate and weâre dependent on the global economic situation.â
The Finnish unemployment rate is relatively high in international comparison. Sweden, for example, has an unemployment rate of approximately six per cent and Germany one of approximately three per cent.
Obstbaum believes the popularity of part-time employment is virtually the only reason for the difference between the rates in Finland and Sweden.
She declined to speculate on whether the employment situation will continue to improve at a slower pace or begin to deteriorate in Finland. One reason for her reticence is that economic growth may continue in spite of the expected slowdown and another is that it remains premature to evaluate whether the labour market reforms adopted over the past years have also had an impact on structural unemployment.
âRight now it seems that, because the decline in unemployment has been so fast, there may be some structural changes in the background. And if thatâs the case, unemployment wouldnât return to its usual higher level, but the structural changes would bring unemployment down permanently,â said Obstbaum.
âThe activation model and limiting the eligibility period for unemployment security are examples of reforms that have a direct impact on how attractive itâs to work and be unemployed. Another factor is that real wage development has been very slow compared to productivity and itâs possible to hire more employees without jeopardising profitability,â she added.
Aleksi Teivainen â" HT
Photo: Mikko Stig â" Lehtikuva
Source: Uusi Suomi