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2010 OECD Economic Surveys: Finland 2010

image of OECD Economic Surveys: Finland 2010

OECD's periodic survey of Finland's economy.  This 2010 edition includes chapters on overcoming the crisis, sustainable public finances, coping with the jobs crisis and preparing for ageing, and rising inequalities. It finds that the crisis hit Finland harder than most other OECD countries, worsening the fiscal outlook. This calls for a stronger fiscal framework.  Employment has held up relatively well, but rigidities in the labour market could complicate recovery. Increasing inequalities challenge Finland's social model and may be aggravated by the crisis.

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Coping with the job crisis and preparing for ageing

Maintaining high participation and employment in the face of the current recession and a rapidly ageing population are major challenges for policy makers. The recession of the early 1990s showed that high unemployment can leave long-lasting scars on labour markets, while rapid ageing requires longer working lives to ensure sustainable public finances. Minimising the effect of the recession on the labour market calls for nominal wage increases in line with economic conditions, greater flexibility in wage setting, ensuring earlier activation of unemployed and reforming unemployment and social benefits to better support work incentives. Finland has an unusual combination of elevated unemployment replacement rates and late referral to labour market activation, which contributes to high levels of inactivity and a large number of beneficiaries. This combination risks building up greater structural unemployment over time. More ambitious activation needs to be accompanied by lower replacement rates in the unemployment insurance and related schemes to support labour market participation, job search and employment. Institutional responsibilities in labour market policies should be simplified and made more transparent. With an already low effective retirement age, additional early permanent exit from the labour market needs to be discouraged. The recent success of restricting access to the unemployment pipeline should be followed up by a complete abolition of the system. Stricter criteria for entry into disability pensions should also be applied. The 2005 pension reform was a step in the right direction, but the old-age retirement system should be further adjusted to lower fiscal costs, raise the minimum retirement age and increase work incentives for older individuals.

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