copy the linklink copied!Chapter 1. Drivers of growth and challenges for regional development

This chapter assesses the economy of North Karelia and Outokumpu and serves as a basis for policy recommendations in the following chapters. The chapter contains two parts: the first sets the scene and outlines the most influential national trends that shape the economy of North Karelia and Outokumpu as well as the history of these regions; the second identifies major trends, strengths and bottlenecks to development.

    
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Box 1.1. Assessment and Recommendations

Assessment

North Karelia is an industrial region in northeast Finland that was hit hard by external shocks but has recovered relatively strongly. Finland has been affected by a convergence of factors over the past decade: the crisis, the technological change in electronics, the structural decline in demand for paper pulp and the disruption of trade with Russia. In addition, Finland has an inflexible exchange rate, which has meant adjustments occur through wage restraint and fiscal consolidation. These changes have affected North Karelia negatively as an industrial region that is relatively trade-exposed with a high proportion of the local workforce employed in the public sector. Gross domestic product (GDP) per capita in 2015 for North Karelia was USD 28 900, 76.2% of the national average. After the crisis, North Karelia was able to recover quickly, the gap between the regional and national levels narrowed from 30% in 2009 to 24% in 2015.

Outokumpu is a small rural municipality in North Karelia that has experienced a long-term transition associated with the closure of a major copper mine in 1989. For most of the 20th century, Outokumpu was the key mining municipality in Finland. The extraction of copper ore started the development and industrialisation of Outokumpu. However, mining activities in the municipality ceased completely at the end of 1989. The transition from mining to a manufacturing-based economy has been a positive experience, though not without its problems. Currently, North Karelia and Outokumpu face development challenges, particularly in terms of generating a more dynamic business environment and labour market.

Strengths/competitive advantages in North Karelia and Outokumpu:

The geographical location opens opportunities for the region of North Karelia and the municipality of Outokumpu. Outokumpu is located within the local labour market (LLM) of Joensuu – an important service and manufacturing centre for the region of North Karelia – and its university is a key economic asset for the LLM and the region. Growth in North Karelia is mainly concentrated in the LLM of Joensuu, which is of sufficient size and diversity to attract skills that can support diversification and value-adding in the regional economy. A key issue for a municipality such as Outokumpu is how to further enhance integration both institutionally and through infrastructure connectivity with Joensuu.

  • In a European context, North Karelia and Outokumpu are highly specialised in industrial sectors (e.g. mining and manufacturing) and, therefore, these sectors are vital for their economy. In the case of Outokumpu, one-third of the jobs are created in the manufacturing sector with a specialisation in metal product manufacturing that is performing strongly. Over the past two decades, the value of mining activity in the region has increased and the mining value chain (extraction and processing) has become more important to the regional economy. As such, the industry of Outokumpu plays an instrumental role in the smart specialisation strategy of North Karelia. This includes the industrial park of Outokumpu, which hosts knowledge-intensive and globally connected companies in the metal technology sector.

  • As a result of long-term specialisation in mining, Outokumpu has developed expertise and infrastructure to extract and manufacture mineral and metal products. This existing know-how can facilitate future opportunities for the municipality in terms of quality of life such as increased employment (including highly skilled workers) and public and private sector investment related to the mining and extractive sectors. Furthermore, existing mining knowledge can be translated into services around mining activities such as a heritage centre and mining education and training.

Bottlenecks for sustainable economic development:

  • Like many rural remote regions and communities, North Karelia and Outokumpu face challenges in terms of the size of the potential workforce due to the declining and ageing population. The latter has crucial consequences for a shrinking working-age population, such as higher costs in healthcare and senior services provision combined with a shortage of workers to deliver these services, and decreasing local tax revenues. Key challenges exist for younger people and older workers – a more proactive approach is needed in terms of workforce development and skills with a particular focus on transition pathways for these groups.

  • The financial crisis severely affected the employment rates of the young and working-age population while the share of the working-age population outside of the labour force increased. Moreover, Outokumpu is highly specialised in industrial activities. Mismatches in the labour market are jeopardising the competitiveness of Outokumpu since the local industrial sector’s labour demand does not match the skills of the local workforce (generally lower-skilled) and the need for specialists (e.g. operators and engineers) is high.

  • Alongside these demographic and labour market trends, the lack of diverse employment opportunities in Outokumpu has meant that the high-skilled local population has migrated to areas with greater opportunities for economic development and quality of life (e.g. capital region and Joensuu). This will further magnify the impact of demographic change on the future labour force supply and the fiscal sustainability of the municipality.

  • Outokumpu has a competitive industrial sector with international linkages. However, it is not particularly dynamic in terms of new enterprise creation. The municipality has in recent years faced a declining rate of entrepreneurship and stagnation in the establishment of new businesses. Improving the local environment for entrepreneurship will help the municipality achieve its objectives to diversify the economy, develop a more dynamic labour market and improve quality of life.

Recommendations

The analysis in this chapter suggests a small number of future policy priorities for the Regional Council of North Karelia and the municipality of Outokumpu that will be further developed in the following chapters:

  • Strengthen institutions that enable prioritisation and co-ordination of policies and resource allocation at the scale of the Joensuu LLM (e.g. workforce development and skills, service delivery, infrastructure planning and investment, business support services and entrepreneurship).

  • Promote the role of the mining value chain (minerals and metals extraction, related manufacturing, and mining technology services) as a driver of regional growth and competitiveness (e.g. in the North Karelia Smart Specialisation Strategy, and land use and infrastructure strategies).

  • Develop a regional approach to workforce development and skills in partnership with local industry, which includes transition pathways for at-risk groups and a co-ordinated approach to attracting and retaining specialised skills.

  • Implement a cohesive approach to supporting local entrepreneurship which is inclusive of small rural municipalities in the region.

copy the linklink copied!Introduction

This chapter diagnoses the performance of the TL3 region North Karelia and the municipality of Outokumpu. It then identifies the main strengths and bottlenecks driving the performance and effects on well-being in the region and in the municipality. Before this analysis, it provides a brief historical overview of the mining sector. Although mining is not a dominating economic activity in the region, contributing to only 4% of regional GDP and the municipality of Outokumpu, it has an important legacy and role in its future.

The analysis benchmarks the performance of the TL3 region of North Karelia against national trends and other comparable TL3 regions. For this task, it benchmarks the performance of North Karelia against regions with the same TL3 classification using the extended OECD typology (see Box 1.2) and it also benchmarks the performance of North Karelia against regions with the same economic profile.

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Box 1.2. Comparable TL3 regions for North Karelia

Regional classification

The OECD has developed a regional typology of Territorial Level 3 (TL3) regions to compare regional performance across member countries. Regions are defined based on the population density of municipalities (defined as rural if their population is below 150 inhabitants per km2), the size of their main urban agglomeration, and proximity to a functional urban area. This typology classifies TL3 regions as predominately urban, intermediate, predominantly rural close city and predominantly remote rural region. Using the OECD regional typology, North Karelia is defined as a predominantly rural remote region. There are 486 predominately remote rural regions across the OECD and 7 in Finland (Åland, Central Ostrobothnia, Kainuu, Lapland, Southern Ostrobothnia and Southern Savonia, in addition to North Karelia).

Source: Brezzi, M., Dijkstra, L. and Ruiz, V. (2011[1]), “OECD Extended Regional Typology: The Economic Performance of Remote Rural Regions”, https://dx.doi.org/10.1787/5kg6z83tw7f4-en.

Within a European context, North Karelia has a relatively high specialisation in industry (manufacturing, mining, energy and water), and natural resource-based sectors (particularly forestry). To draw international comparisons, the analysis identifies 14 OECD TL3 regions similar to the characteristics of North Karelia based on 2 characteristics (rurality and industry linked to natural resources). The regions were selected using the following three-step criterion:

  1. 1. Each TL3 predominantly rural remote region in the European Union (EU) was ranked according to its sectoral share in industry and locational quotient (the ratio of the regional share in industry to the national share).

  2. 2. The population size of each region was compared to North Karelia.

  3. 3. Desktop research was used to identify if regions with a similar level of specialisation and population size had current mining activities and/or a legacy of mining.

Based on this procedure the following regions were selected as comparators for North Karelia:

  • Liezen, Oberkärnten and Waldviertel (Austria).

  • Aveyron, Jura, Mayenne and Vosges (France).

  • Finnmark, Nordland and Nord-Trøndelag (Norway).

  • Baixo Alentejo, Beira Baixa and Terras de Trás-os-Montes (Portugal).

  • Dalarna County (Sweden).

The municipality of Outokumpu is benchmarked against other municipalities in the Scandinavian context and to the local labour market (LLM) in North Karelia. The LLM, as described in subsequent sections, is based on aggregations of contingent and integrated municipalities based on commuting patterns. Outokumpu is part of an LLM along with five other adjacent municipalities.

copy the linklink copied! North Karelia, Outokumpu and the history of mining

North Karelia is Finland’s easternmost region. According to OECD TL3 typology, North Karelia is classified as a predominantly rural remote region. It shares around a 296 km frontier with Russia and a regional border with Kainuu, Pohjois-Savo and South Savo. In 2017, North Karelia was home to 162 986 people, which represents 3% of the Finnish population. The region’s land area (17 761 km2) represents 5.8% of the total land area of Finland. North Karelia has a population density of 9.2 inhabitants per square kilometre compared to the national figure of 17.94.

The municipality of Outokumpu is located within the region of North Karelia and it is home to around 7 000 inhabitants, which represent approximately 4.3% of North Karelia’s population. Due to the relatively small land area of Outokumpu (445.81 km2), it is one of the most densely populated municipalities in the region (population density was 15.7 people per square kilometre compared to the population density of North Karelia of 9.2 persons per square kilometre).

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Figure 1.1. North Karelia is the easternmost region in Finland
Figure 1.1. North Karelia is the easternmost region in Finland

Source: Author’s elaboration

The economy of North Karelia is quite diverse with the following activities:

  • It has an important base in forestry and related value-added, and agriculture. Agricultural production is mainly in livestock alongside dairy and cereals, berries and vegetables.

  • The structure of the export base has evolved to include a range of manufacturing subsectors. Areas of specialisation for the region include the production of plastic and metal products, mechanical wood processing and the manufacturing of stone products.

  • Services have been increasing due to the growth of the university in Joensuu, and the growing demand for health and social services as the population ages.

  • Tourism is of less importance to North Karelia than other regions in Northern and Eastern Finland.

North Karelia is also specialised in mining. Mining and quarrying currently employ 3% of the labour force (compared to 1% in Finland). In Outokumpu, 4% of the labour force is employed in mining and quarrying. Mining also has an important historical legacy in the region and in particular for the municipality of Outokumpu.

The transformation of mining in Finland, North Karelia and Outokumpu

The Finnish economy industrialised relatively quickly after the Second World War, exploiting its linkages to Western Europe and the Soviet Bloc. During this period, the extraction of minerals and metals declined as a share of the economy whilst the processing of minerals and metals increased.

Finland’s economy was hit hard by the recession of the early 1990s, which was compounded by the fall of the Soviet Union and transition of the former eastern bloc countries. Throughout the 1990s, the economy adapted with increasing growth in knowledge-based services. Rising global commodity prices in the 2000s led to an increased interest in mining and exploration.

In recent decades, Finland’s economy experienced further shocks including the decline in markets for electronic exports, lower demand for paper and pulp, and the collapse in export markets to Russia. These external shocks had a significant impact on economic performance leaving output in 2015 7% below that of 2007 (OECD, 2016[2]).

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Figure 1.2. Mining activities across Finish predominantly in rural remote regions, 2006-16
Share of mining of the regional GVA
Figure 1.2. Mining activities across Finish predominantly in rural remote regions, 2006-16

Note: Predominantly rural remote regions, Finland.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The government’s economic programme since the global financial crisis has focused on improving the cost competitiveness of Finnish industry and the economy’s resilience to change including through wage restraint and fiscal consolidation. In the medium term, exports will be important to the recovery of Finland due to slow household income growth and lower public spending.

Although it only represents 0.4% of national gross value-added (GVA) in 2016, Finland’s economy has an important legacy in mining. Currently, there are around 40 active mines and a number of exploitation projects (Mining Finland, n.d.[4]) scattered unevenly across its territory and regions.

Generally, the share of mining varies from 0.1% to 10% across its TL3 regions. Lapland and North Ostrobothnia have relatively higher specialisation in mining than other regions. Lapland alone contributes to 30% of Finland’s value-added in mining. A majority of mineral deposits and new exploration projects are situated not only in Northern Finland but also in Eastern Finland (e.g. North Karelia). North Karelia’s share of national GVA in mining is currently 6.4%.

Outokumpu was established in 1913 with the start of copper mining, which was subsequently expanded to include the refining and smelting of copper. Production of copper from the mine increased rapidly from the 1930s and peaked in the 1960s. From this point onwards, the mine entered a long phase of declining production and closure in 1989.

The municipality, located in the Outokumpu geological area that contains copper, zinc, cobalt and nickel deposits, still has unexploited resources and there are a number of mining exploration projects underway (GTK, 2014[5]). In addition, Outokumpu is in close proximity to two active mines: Kylylahti multi-metal mine in Polvijärvi and Endomines gold mine in Ilomantsi. Overall, there are at least ten known deposits with active permits at less than one-hour’s distance from Outokumpu (see Chapter 2 for further discussion).

copy the linklink copied!Demographic and settlement patterns

The population is decreasing in North Karelia as opposed to a national positive growth trend. The population growth in North Karelia over 2001-15 was negative (96.3) when compared to the base year (2001=100), in contrast with the national trend of 105.6. This decrease, albeit slightly lower, is similar to the trend in other Finish rural remote regions (98.4) and the TL3 benchmark regions with a similar characteristic (Table 1.1).

The elderly population dependency ratio is higher in North Karelia than in comparable regions and is growing at a faster pace. North Karelia has a higher elderly dependency ratio (36.3%) against the ratio in benchmark TL3 regions (35.5%) and nationally (31.5%). Over 2001-15, the population was ageing the fastest in Finland (140.4) followed by other rural remote regions in Finland (132.2) and North Karelia (130.2). Notwithstanding these lower trends, the region faces a higher growth rate in elderly population when compared to the benchmark TL3 comparable regions.

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Table 1.1. Population growth and ageing, North Karelia, Finland and select regions, 2001-15

 

Population growth index

Population aged 65+ growth index

Finland

105.6

140.4

North Karelia

96.3

130.2

Other predominantly rural regions (PRR) in Finland

98.4

132.2

Benchmark regions

98.6

116.2

Note: Growth index calculated based on index year (2001 = 100).

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

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Figure 1.3. Elderly dependency ratio, North Karelia compared with Finland and select regions, 2015
Figure 1.3. Elderly dependency ratio, North Karelia compared with Finland and select regions, 2015

Note: Elderly dependency ration, as a percentage of 65 year-olds or more over population aged 15-64.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

Outokumpu is a municipality in North Karelia, part of the local labour market and located 50 kilometres from Joensuu, the economic centre of North Karelia. Local labour markets (LLMs) are defined as contiguous municipalities with a significant degree of commuting across municipal borders. In North Karelia, the LLM includes six municipalities (Ilomantsi, Joensuu, Kontiolahti, Liperi, Outokumpu and Polvijärvi), all with different population sizes. Joensuu is the largest municipality of the LLM with a total population of 76 067 inhabitants. Kontiolahti and Liperi are the other 2 municipalities with a population size of over 10 000 inhabitants, followed by Outokumpu with a population of 7 000 and a population density (15.7) above the LLM average of 13.35.

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Table 1.2. Local labour market

 

Population

Density

Share of population living in sparsely populated areas (%)

Ilomantsi

5 128

1.86

45

Joensuu

76 067

31.94

11

Kontiolahti

14 830

18.56

29

Liperi

12 150

16.72

43

Outokumpu

7 003

15.71

32

Polvijärvi

4 414

5.49

68

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Demographic trends in Outokumpu mirror the transition of mining activities. The closure of the mine in 1989 resulted in a long-term demographic decline as demand for labour at the mine was reduced. The population of the town peaked at around 13 000 in 1960 with relatively slow decline until the closure of the mine in 1989, which led to rapid decline. Outokumpu is a classic example of a resource-dependent economy that has experienced a transition due to the depletion of non-renewable resources (see Box 1.3).

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Figure 1.4. Population growth in Outokumpu, 1987-2017
Figure 1.4. Population growth in Outokumpu, 1987-2017

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

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Box 1.3. Resource-dependent economies and transition

Rural economies are characterised by low population densities, small internal markets and greater reliance upon exports to drive growth. The abundance of resource endowments (which vary by region) means that growth is largely driven by the extraction and export of raw materials or “staples” (e.g. minerals, metals, timber and food). This export base has a multiplier effect as the income flows into the region and generates additional activity for local suppliers which spend a part of this on additional local consumption. A key challenge for resource-dependent rural economies is capturing greater value-adding opportunities by developing upstream (production and services) and downstream (further processing) linkages.

Specialisation in mining and extractive industries has particular impacts on rural economies. The productivity of this sector tends to be higher and this supports higher wages. Increased spending can drive up prices in the non-traded sectors (e.g. accommodation and food services, construction, housing) and this affects the competitiveness of other tradable sectors (e.g. tourism-related services, manufacturing, food and agriculture). The mining sector also tends to be capital intensive and directly employs only a small share of the workforce. In some regions, this workforce is also increasingly mobile and characterised by “fly-in/fly-out” or “drive-in/drive out” dynamics. Higher wages supported by extractive industries and the capture of benefits by a low share of the population can contribute to higher inequality within regions.

Growth cycles of these regions can differ from national economies due to shifts in commodity markets and the finite nature of non-renewable resources. There are three phases which are:

  • The investment phase that can lead to relatively large increases in local economic activity and employment due to the capital investment required to establish new mining and extractive activities.

  • The production phase when mines are operational, which creates ongoing business and employment opportunities in the region often at a higher income and wage level than other sectors.

  • Decline and closure of mining and extractive operations that can then lead to significant reductions in local economic activity and employment.

A number of factors shape the resilience of resource-based economies to these transitions. The first is the existence of other areas of absolute and competitive advantage, for example, different types of minerals and metals, opportunities for food production, high-quality amenities and access to markets. The second is the level of integration between mining and extractive operations and the local economy. Weak linkages reduce the scope for diversification (whether it be related services and/or manufacturing) and value-added leaving the local economy vulnerable to changes in commodity prices and the depletion of resources. Third, is the size of the local population that influences the diversification of the economy and its capacity to adjust to shocks.

Sources: Stimson, R., R. Stough and B. Roberts (2006[7]), Regional Economic Development: Analysis and Planning Strategy, Springer; Mitchell, C. and K. O’Neill (2016[8]), “Tracing economic transition in the mine towns of northern Ontario: An application of the “resource-dependency model””, http://dx.doi.org/10.1111/cag.12238; Ivanova, G. (2014[9]), “The mining industry in Queensland, Australia: Some regional development issues”, http://dx.doi.org/10.1016/J.RESOURPOL.2014.01.005; OECD (2017[10]), “Mining regions and their cities: Scoping paper”, http://www.oecd.org/cfe/regional-policy/Scoping-paper.pdf (accessed on 27 March 2019).

Population in Outokumpu is decreasing at a faster pace than in the broader local labour market. During 2001-17, the population decreased (87.3) in the municipality with respect to the base year (2001 = 100), against a relatively stable population trend in the LLM (Figure 1.5).

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Figure 1.5. Population growth in Outokumpu and its local labour market, 2001-07
Figure 1.5. Population growth in Outokumpu and its local labour market, 2001-07

Note: 2001 value = 100.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The elderly dependency ratio (65 and over to the working-age population of 15-64) for Outokumpu was higher than in the broader local labour market: it stood at 51% in 2017, around 6 percentage points higher than in the local labour market and 19 percentage points higher than nationally. Since 2009, this gap has been widening with the growth of the share of elderly people increasing from 35% to 51% in the period 2009-17.

The youth dependency ratio (measured by a ratio of youth population aged 0-14 and working-age population) in Outokumpu is around the level of the broader local labour market. The youth dependency ratio decreased from 24% to 21% before the crisis period over 2001-09 and subsequently increased to 26%, the same level as the LLM average.

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Figure 1.6. Elderly dependency ratio and youth dependency ratio, 2001-17
Figure 1.6. Elderly dependency ratio and youth dependency ratio, 2001-17

Note: The elderly dependency ratio is defined as the size of the elderly population (65 and over) related to the working-age population (15-64 years old). The youth dependency ratio is defined as the size of the youth population (0–14 years old) related to the working-age population (15-64 years old).

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The rise in the elderly dependency ratio is driven by a decline in the working-age population in Outokumpu. In 2017, Outokumpu had about 1 011 young residents aged 0-14, 3 963 working-age people aged 15-64 and 2 029 elderly people aged 65 and over. Since 2009, the decline in the working-age population has accelerated (4% decrease) whereas the youth population has increased marginally (0.04%). Therefore, the high increase in the youth dependency ratio was a cause of the greatly decreasing working-age population (see Figure 1.7). The elderly population experienced the highest growth rate as the population increased by 2%, corresponding to 358 individuals.

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Figure 1.7. Growth in the youth, working-age and elderly populations in Outokumpu
Figure 1.7. Growth in the youth, working-age and elderly populations in Outokumpu

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

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Figure 1.8. Ratio of net migration to total population, 2005-17
Figure 1.8. Ratio of net migration to total population, 2005-17

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The age composition in Outokumpu has been transformed as a result of out-migration mainly by the younger population. Net migration data shows that Outokumpu has lost much more population to other municipalities than the LLM on average in 2005-17. In 2017, the total net migration of Outokumpu was -0.5% of the population.

Summary

A key challenge for North Karelia and Outokumpu is a declining and ageing population that is reducing the size of the potential labour force. This challenge is particularly acute for Outokumpu where the population has nearly halved in the past 60 years and the out-migration of skilled working-age people has accelerated since the financial crisis. Outokumpu does benefit from its proximity to Joensuu and integration within its LLM. This suggests two key policy priorities for the municipality and region. The first is fostering further institutional and infrastructure linkages within the LLM, and the second is a proactive approach to workforce development and skills that can mobilise the available labour force.

copy the linklink copied!Economic performance

Economic performance of North Karelia

GDP per capita in North Karelia is lower than the national average but higher when compared to TL3 benchmark regions. In 2015, GDP per capita for North Karelia was USD 28 900, which was 76.2% of the national average and 89.8% of the benchmark region average. However, the level of GDP per capita for North Karelia was higher than for the other predominantly rural remote regions in the EU.

North Karelia’s economy has been more resilient to the crisis than nationally. The gap in per capita GDP between North Karelia and the country average has narrowed, especially after the crisis. During 2001-15, the GDP per capita gap between North Karelia and the national average declined from 29.3% to 23.7% and the gap to benchmark regions average widened from 6.7% to 10.2%. The gap narrowed due to North Karelia’s faster growth rate. During the financial crisis, between 2007 and 2009, GDP per capita decreased by 12% compared to the national average of 9.3%. However, after the crisis (2010-15), North Karelia grew 1.3% compared to 0% for Finland.

Labour productivity in North Karelia is below the national average. Labour productivity, measured as GDP per worker, in 2015 was USD 62 792, which was 12.3% lower than the national average of USD 71 615. Compared to the benchmark regions, North Karelia performed better in terms of labour productivity than other selected regions (the average for predominantly rural remote TL3 regions in Europe [USD 60 147] and the benchmark regions [USD 61 124]).

North Karelia’s labour productivity was more resilient to the crisis and the gap with the national level has narrowed. The drop in labour productivity during the crisis period (2007-09) was higher in North Karelia than in Finland on average (-13% compared to the national average of -8.5%). In addition, the decrease was much higher than for the predominantly rural remote regions in Europe average (-3.8%) and the benchmark regions average (-3.4%). However, the recovery of North Karelia in labour productivity between 2010 and 2015 was faster (1.2%) compared with the national average (0%), predominantly rural remote regions (0.8%) and benchmark regions (0.7%). The higher growth rate in labour productivity led to lower the gap with the national level from 14.5% to 12.3% in the period 2004-15.

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Figure 1.9. GDP per capita trend, 2001-15
USD purchasing power parities (PPP) 2010
Figure 1.9. GDP per capita trend, 2001-15

Note: USD million, constant prices, constant PPP, base year 2010. Benchmark regions have been identified based on the following criteria: TL3 region classified as predominantly rural remote, similar percentage of GVA in industry of regional economy, current mining activity or mining heritage, and similar level of GDP per capita. They are: Liezen, Oberkärnten and Waldviertel (Austria); Aveyron, Jura, Mayenne and Vosges (France); Finnmark, Nordland and Nord-Trøndelag (Norway); Alentejo, Baixo Beira Baixa and Terras de Trás-os-Montes (Portugal), and Dalarna County (Sweden). There are 175 EU TL3 predominantly rural remote regions included in the sample, which also includes Norway.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

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Figure 1.10. Labour productivity trend, 2004-15
Figure 1.10. Labour productivity trend, 2004-15

Note: USD million, constant prices, constant PPP, base year 2010.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

In an EU context, North Karelia’s economy is dominated by industrial sectors. The industrial sectors combine forestry, energy and mining with manufacturing. North Karelia had a high level of labour productivity in industrial sectors and the labour productivity was well above the median of EU predominantly rural regions in 2015 (see Table 1.3).

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Table 1.3. GVA by sectors, North Karelia in an EU context, 2015

 

North Karelia (%)

EU median of PRR (%)

Industry

21.5

18.3

Mining and energy

4.6

3.2

Tradable sector

54.7

48

Natural resource specialisation

12.7

12.4

Tradable services

9.3

9.2

Note: 158 predominantly rural regions (PRR) in the EU.

Source: OECD (2018[11]), OECD Regional Statistics, https://www.oecd-ilibrary.org/urban-rural-and-regional-development/data/oecd-regional-statistics_region-data-en (accessed on 3 December 2018).

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Table 1.4. Productivity in North Karelia, 2015

 

North Karelia (USD)

EU median of PRR (USD)

Labour productivity

63 792

52 578

Labour productivity - mining

200 330

122 211

Labour productivity - industry

80 894

69 633

Note: 122 Predominantly rural regions in the EU.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

North Karelia is highly specialised in industrial sectors in a national context. The agriculture, forestry and fishing sector scored the highest local quotient both in terms of employment by industry and GVA by industry. Other areas of specialisation are the manufacturing and mining sectors. Real estate and construction are other sectors of specialisation in terms of gross value-added (GVA) and, like the other service sectors, are clustered within the city of Joensuu.

Manufacturing activities were particularly vulnerable to the effects of the financial crisis in Finland and in North Karelia. Manufacturing activities in 2007 contributed to almost 30% of North Karelia’s output. This contribution decreased in the aftermath of the crisis by six percentage points over 2007-16. Against this trend, tradable sectors such as the forestry sector, industry (mining and energy) and business services (information and communication technology [ICT] and professional and technical services) in North Karelia experienced growth during the period 2005-15.

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Table 1.5. National specialisation index by economic activity, North Karelia, 2015
Location quotient

 

Employment

GVA

Agriculture, forestry and fishing

2.0

2.8

Manufacturing

1.1

1.0

Industry (excluding manufacturing)

1.1

1.1

Construction

1.0

1.1

Trade, transport, accommodation and food services

0.8

0.8

Information and communication

0.5

0.5

Financial and insurance

0.6

0.6

Real estate

0.9

1.1

Professional services

0.6

0.5

Public administration

1.1

1.2

Other services

1.1

1.0

Note: The locational quotient for each sector is the ratio between the sector weight in the regional gross value-added (GVA)/employment, and the weight of the same sector in the national GVA/employment. A value above 1 implies that the region is more specialised in that sector than the rest of the economy. GVA based on USD PPP constant values (2010).

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

Within the manufacturing sector, North Karelia performed well in the manufacture of machinery and equipment, the paper industry, the manufacture of fabricated metal products, the chemical industry and worse in the manufacture of electrical and electronic products and other non-metallic mineral products. The region is highly specialised in the manufacture of rubber and plastic products, as well as the manufacture of food products. Since the financial crisis there have been some changes with:

  • The most significant decreases in the electrical and electronic products activities (-62.6 percentage points), manufacture of other non-metallic mineral products (-40.5 percentage points) and woodworking industry (-16.4 percentage points).

  • Some areas of growth even though manufacturing experienced a drop during 2007-16. These include growth in the manufacture of machinery and equipment (35 percentage points), the paper industry: printing (20.5 percentage points), and in the manufacture of fabricated metal products sector (16.1 percentage points) (see Table 1.6).

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Table 1.6. Change in output, manufacturing subsectors, North Karelia and Finland, 2007-16

Percentage of

North Karelia economy (2007)

Percentage point change in output, North Karelia (2007-16)

Percentage point change in output, Finland (2007-16)

Woodworking industry

6.3

-16.4

-20.1

Manufacture of machinery and equipment

4.8

35.0

-5.6

Paper industry: Printing

4.7

20.5

-14.8

Manufacture of electrical and electronic products

4.0

-62.6

-50.4

Manufacture of fabricated metal products

3.6

16.1

-24.7

Chemical industry

2.9

10.3

1.8

Manufacture of other non-metallic mineral products

1.5

-40.5

-13.0

Other manufacturing: Repair and installation of machinery and equipment

1.5

-7.3

0.2

Manufacture of transport equipment

0.2

-1.6

-11.3

Total

29.5

-5.2

-15.3

Note: Current prices.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

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Figure 1.11. Financial crisis affected manufacturing negatively
Figure 1.11. Financial crisis affected manufacturing negatively

Note: GVA based on USD PPP constant values (2010). Comparing Finland, North Karelia and other predominantly rural remote regions in Finland.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

The mining sector, alongside energy, was one of the sectors recording positive growth over the 2005-15 period. In real terms, the mining sector has grown by 75% since 2001 in North Karelia. This type of development is consistent with the national average that is mainly driven by the increase in Lapland. Lapland has benefitted from favourable market conditions in mining and quarrying, driving a 10-fold increase over 2001-16 (see Figure 1.12).

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Figure 1.12. Growth index, regional output, North Karelia, Finland and select regions, mining and quarrying, 2001-16
Figure 1.12. Growth index, regional output, North Karelia, Finland and select regions, mining and quarrying, 2001-16

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

North Karelia has relatively fewer firms that are larger compared to other predominantly rural remote regions in Finland (Figure 1.13, Figure 1.14). Moreover, the start-up intensity is lower than the national average. The number of new enterprises per 1 000 inhabitants was 3.88 in 2014, compared to the national average of 5.27. The absolute number of new enterprises has decreased since 2007 and, in 2013, was 14.5% lower than in 2005. However, the share of entrepreneurs over total employment was higher than the national average in 2013 (13% compared to 11%).

North Karelia has lower employment rates nationally but this gap has been closing. The employment rate in North Karelia stood at 61.5% in 2016, which was 7.1 percentage points lower than the national average of 68.6% (18-64 years old) (Statistics Finland, 2019[3]). The gap decreased by nine percentage points in the crisis period (2007-09).

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Figure 1.13. Average size of establishments, 2014
Average number of employees in establishment
Figure 1.13. Average size of establishments, 2014

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

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Figure 1.14. Density of establishments, 2014
Figure 1.14. Density of establishments, 2014

Note: Percentage of establishments per 1 000 inhabitants.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

Unemployment is higher in North Karelia than nationally and the gap has been closing in recent years. In 2016, the unemployment rate was at 18% in North Karelia. This was 4.6 percentage points higher than the national average of 13.6%. The gap in unemployment reduced since the crisis period, from 6.6%.

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Figure 1.15. Employment rate change, North Karelia, Finland and select regions, 2007-14
Figure 1.15. Employment rate change, North Karelia, Finland and select regions, 2007-14

Note: Employment rate growth, 15 years old and over, index 2007 = 100.

Source: OECD (2019[6])OECD Regional Statisticshttp://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

Regional economic performance of Outokumpu

From the 1960s, local leaders in Outokumpu have implemented a strategy to support the transition of the town to reduce its reliance on mining operations. This strategy has been based upon diversifying into mining services and technologies. This shift was also a circumstance of history as the Outokumpu Mining Company had to innovate copper refining methods in the context of World War II, which led to the establishment of its technology division (Outokumpu Mining Oy, 2019[12]). An industrial estate was set up in Outokumpu in the late 1970s and the government provided specific incentives to attract firms to the town through financial support for the construction of buildings and wage subsidies (over the first three years of operations). The Outokumpu Mining Company started to manufacture mining equipment in the town from the early 1980s and, throughout this decade, manufacturing began to constitute a larger share of the local economy.

Over the past 60 years, Outokumpu has shifted from a mining producing municipality to one based on subcontracting and exports of metal technologies and mining services. This structural shift represented a decline in population (almost half since the peak in the 1960s). The decline and ageing of the population has generated challenges in terms of municipal finances and skills mismatches. However, the town does have a relatively high-performing industrial sector and business ecosystem around its industrial park. The industrial park plays an important role in terms of land and building services and as a platform to co-ordinate the delivery of business support services. Today, the municipality positions itself as a modern industrial town with a focus on increasing attractiveness, the efficiency of municipal services and improving the well-being of citizens.

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Figure 1.16. Employment in mining and manufacturing in Outokumpu, 1993-2007
Figure 1.16. Employment in mining and manufacturing in Outokumpu, 1993-2007

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

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Figure 1.17. Ratio of industrial jobs to population, 2007-16
Figure 1.17. Ratio of industrial jobs to population, 2007-16

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The educated population are more likely to out-migrate from Outokumpu. When looking more closely at the profile of those migrating from Outokumpu, the latest evidence shows that population with an upper secondary education or higher are more likely to out-migrate from Outokumpu (see Figure 1.18). In 2014, 1.2% of the population with at least upper secondary education moved away from Outokumpu. Outokumpu is experiencing a brain drain, as the share of the population with higher levels of education are moving out of Outokumpu.

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Figure 1.18. Ratio of net migration to total population by level of education, 2007-15
Figure 1.18. Ratio of net migration to total population by level of education, 2007-15

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Outokumpu has a strong industrial sector and a high share of tradable activities. The share of tradable activities measured by total employment in those sectors was 46% in 2016. A large share of this comes from manufacturing, which represents more than one-third of the jobs in Outokumpu. The public sector represents one-fourth of the jobs in Outokumpu, eight percentage points lower than the share in the LLM on average.

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Table 1.7. Employment by sector, 2016

Finland (%)

LLM (%)

Outokumpu (%)

Agriculture, forestry and fishing (A)

3

9

4

Public administration and defence, compulsory social security, education and human health (O, P, Q)

29

33

25

Construction (F)

7

7

5

Real estate (L)

1

1

1

Other services (R, S, T, U)

5

5

4

Mining and quarrying, electricity and water supply

(B, D, E)

1

3

4

Manufacturing (C)

13

15

33

Wholesale and retail trade, transportation, accommodation and food services (G, H, I)

21

15

13

Information and communication (J)

4

1

1

Professional, scientific, technical and administrative activities (M, N)

13

8

10

Financial and insurance activities (K)

2

1

0

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The manufacturing sector in Outokumpu was less affected by the crisis than nationally as employment in manufacturing declined only by 1%. On the other hand, mining and extractive activities grew in importance in the LLM and Outokumpu. The highest growth rate in the LLM was measured, where the sector grew from 1% to 3% in 2007-16.

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Figure 1.19. Employment in mining and quarrying sector is growing, 2007-16
Figure 1.19. Employment in mining and quarrying sector is growing, 2007-16

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Take a closer look at the dynamics of job creation in different sectors of the LLM and Outokumpu, 5% of the jobs of the LLM were created in Outokumpu in 2016. Broken down to the distribution of employment by sectors, the analysis shows that 14% of the jobs in mining and other extraction industries were in Outokumpu in 2016 (see Figure 1.20).

The business demography in Outokumpu is characterised by a low level of entrepreneurship and a low number of companies per inhabitant. In 2016, entrepreneurs represented approximately 11% of the employed labour force in Outokumpu, which was 2.9 percentage points lower than the LLM average. In terms of absolute numbers, the number of entrepreneurs decreased from 330 (2005) to 246 (2016). A similar trend was identified for the LLM where the number of entrepreneurs decreased annually by 1.2 percentage points, 1.2 percentage points lower than the rate for Outokumpu. Compared to the change of wage earners, the number of entrepreneurs has decreased at a faster rate (the difference in annual growth rates was 0.98 percentage points in 2005-16).

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Figure 1.20. Contribution to total employment of the LLM by sector in Outokumpu, 2015
Figure 1.20. Contribution to total employment of the LLM by sector in Outokumpu, 2015

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

As seen in the analysis above, there is a structural transition in the local economy from mining toward manufacturing. Manufacturing together with localised impacts of the crisis, and demographic trends such as an ageing population and negative net migration may have influenced the declining levels of entrepreneurship.

Unlike entrepreneurs, the number of enterprises has increased in Outokumpu since 2005. Between 2005-16 the annual growth of enterprises operating in Outokumpu was 117 (with 2005 as the base year). Despite the growing number of enterprises in Outokumpu, development is slightly slower than in the LLM with an annual growth rate of 122 in 2016. During the crisis period, the annual growth index was higher in Outokumpu than in the LLM on average. After 2011, Outokumpu experienced a decrease in the number of operating enterprises in the area from 112 to 107. The number of businesses in the agriculture, forestry and fisheries sectors increased by four and two businesses respectively during 2005-12 and 2013-16. The highest increase occurred in the number of enterprises in the forestry and logging sector. On the contrary, the number of enterprises in manufacturing increased by three companies during 2005-12 and decreased by five during 2013-16.

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Figure 1.21. Outokumpu’s business environment is not dynamic
Figure 1.21. Outokumpu’s business environment is not dynamic

Note: 2005=100.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Outokumpu has a lower share of high-skilled employed labour force than in the broader local labour market. This outcome is not surprising given that the high-skilled population are more likely to out-migrate than the share of population with lower skills. The share of high-skilled labour force was 27.6% of the total employed labour force, which was 7.9 percentage points lower than the LLM average of 35.6%. Since the financial crisis, the share of high-skilled employed labour force decreased annually by 1%, from 29.1% to 27.6%. Respectively, the number of employed people with a lower level of education has been decreasing in 2009-16 in all regions annually on average by 5.4%.

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Figure 1.22. Outokumpu has a low share of high-skilled employed labour force
Figure 1.22. Outokumpu has a low share of high-skilled employed labour force

Note: Lower education refers to the category “basic education/level of education unknown”. Higher education refers to the categories “lowest level of tertiary education/lower-degree level of tertiary education” and “higher-degree level of tertiary education/doctorate or equivalent level of education”.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

The labour market indicators in Outokumpu lags behind its local labour market and its region.

  • In 2016, the employment rate in Outokumpu 56.3%, is 6.3 percentage points lower than in its LLM and 5.8 percentage points below the regional level. Despite this gap, the employment rate has increased from its level of 53.2% in 2009.

  • The unemployment rate in Outokumpu was at 19.8% in 2016, which was 1.4 percentage points higher than the LLM average of 18.4% and 1.8 percentage points higher than the regional average. The crisis period hit Outokumpu the hardest from the six municipalities of the LLM. From 2007 to 2009, the unemployment rate in Outokumpu rose from 15.6% to 21.6%. While the average rate of the LLM rose from 14.2% to 16.9%. Since the crisis period, the unemployment in Outokumpu has decreased but has not been able to reach the pre-crisis level of 15.6%.

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Figure 1.23. Outokumpu is underperforming in terms of labour market outcomes in reference to the benchmark regions
Figure 1.23. Outokumpu is underperforming in terms of labour market outcomes in reference to the benchmark regions

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Structural unemployment is high in Outokumpu. According to Employment Service Statistics (Ministry of Employment and the Economy), the share of persons who have difficulties finding a job has increased since the crisis period (Figure 1.24). In 2017, structural unemployment in Outokumpu stood at 8%, 0.3 percentage points higher than the LLM average of 7.7%.

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Figure 1.24. Structural unemployment, 2006-17
Percentage of the population aged 15-64
Figure 1.24. Structural unemployment, 2006-17

Note: Structural unemployment is based on persons who are difficult to employ that include the long-term unemployed, the repeatedly unemployed, those becoming unemployed after a labour market measure, and those repeatedly circulating between labour market measures. Persons who are difficult to employ are proportioned against the population of the same age to avoid inclusion of people outside the labour force.

Source: National Institute for Health and Welfare (2019[13]), Sotkanet.fi Statistics and Indicator Bank, https://sotkanet.fi/sotkanet/en/haku?indicator=s050BgA=&region=szZ3tc7UM7Q28wFRAA==&year=sy6rsjbX0zUEAA==&gender=t&abs=f&color=f&buildVersion=3.0-SNAPSHOT&buildTimestamp=201802280718 (accessed on 21 March 2019).

Employment rates are age-dependent. The employment rate of each age group was lower than the LLM average in 2006-16. The highest employment rate is reported in Outokumpu among people aged 45-54, where approximately 70% of the age group were employed. On the contrary, less than half of the older population (aged 55-64 years) were employed. Largest gaps in employment by age groups with the local and national averages were reported among the younger population (age groups 18-24 and 25-34) where the difference was about 9 percentage points.

The employment of the youth population was affected most dramatically by the crisis in 2007-09. The economic crisis negatively affected the employment of all age groups at the national and municipality levels (Outokumpu and LLM). Overall, the greatest impact occurred in Outokumpu and affected the youth population the most (population aged 18-24) followed by the young adult population (population aged 25-34). In fact, the employment rate for the younger population dropped by 10 percentage points, from 39% (2007) to 31% (2009). The employment rate of the youth population has not recovered from this drop, standing at 31% in 2016, contrary to the older population (aged 55-64), whose employment rate rose from by 3 percentage points from 39% to 48% during 2009-16. In comparison to the LLM, the employment of youth population dropped from 43% to 36% in 2007-09; however, unlike in Outokumpu, the employment of the youth population recovered and, in 2016, the rate stood at 40% (see Figure 1.25).

The working-age population outside of the workforce has increased annually by 1.2% (2005-16). More than half of this population were women (52% in 2016). During the same period, the share of the employed labour force has decreased by 1.4%. This type of trend indicates that Outokumpu not only has a decreasing active population but also has an increasing population that has dropped out from the social system. This population group represented 4.1% of the total population of Outokumpu in 2016, which was 1.3 percentage points higher than in the LLM on average. In other words, Outokumpu is not taking advantage of its active population.

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Figure 1.25. Employment is age-dependent
Figure 1.25. Employment is age-dependent

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Outokumpu is integrated in its local labour market but this integration can be strengthened. In 2016, Outokumpu had more jobs (2 366) than employed people (2 187) meaning that a significant share of the employed population commutes to Outokumpu. However, a majority (78%) of the employed population living in Outokumpu was also employed in Outokumpu. The share of people commuting to Outokumpu was 31%. Of these, 9% were from Joensuu, 9% from Liperi, 4% from Polvijärvi, 1% from Kontiolahti and 7% from outside of North Karelia.

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Figure 1.26. Share of the population outside the labour force is increasing
Figure 1.26. Share of the population outside the labour force is increasing

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

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Figure 1.27. Number of jobs is decreasing, 2000-16
Figure 1.27. Number of jobs is decreasing, 2000-16

Note: 2000 = 100.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

One-tenth of the employed residents of Outokumpu worked in Joensuu in 2016. Indeed, in 2016, about two-fifths of the employed labour force with higher education and resident of Outokumpu were employed outside of Outokumpu, compared to 17% in Joensuu, the largest municipality in the LLM. The high share of high-skilled employed labour force working elsewhere can be a cause of different things. First, these individuals may not have found a job in the municipality due to the mismatch of skills. Second, the high share of the high-skilled employed labour force working elsewhere may have chosen Outokumpu as a place of residence due to its attractiveness and affordability.

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Figure 1.28. Local labour market is interlinked
Share of commuting employed labour force
Figure 1.28. Local labour market is interlinked

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

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Figure 1.29. High-skilled employed labour force is more likely to be employed outside of Outokumpu
Figure 1.29. High-skilled employed labour force is more likely to be employed outside of Outokumpu

Note: Lower education (LE) refers to the category “basic education/level of education unknown”. Higher education (HE) refers to the categories “lowest level of tertiary education/lower-degree level of tertiary education” and “higher-degree level of tertiary education/doctorate or equivalent level of education”.

Source: Statistics Finland (2019[3])Statistics Finland (database)http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

Summary

North Karelia is highly specialised in industrial sectors and forestry and is performing strongly in terms of productivity in a national and European context. North Karelia has a lower GDP per capita and productivity than nationally but higher than comparable regions.  The crisis had a significant impact on the regional economy, reducing the contribution of manufacturing to regional GVA by one-fifth. Since the crisis period, it has been reducing the national gap given its higher resilience to the effects of the crisis.

The post-crisis period has changed the composition of the region’s manufacturing sector with declines in wood, electrical products, and non-metallic mineral products and increases in machinery and equipment, paper and metal product manufacturing. Over the past two decades, mining activity has continued to grow in the region, in line with national averages. In the context of these trends, the mining value chain (extraction and processing) has become more important to the regional economy. Outokumpu is in a strong position due to its specialisation in metal product manufacturing.

Key challenges for North Karelia and Outokumpu relate to conditions in the labour market and levels of entrepreneurship. In terms of labour market performance, the employment rate in North Karelia is lower than nationally with a gap still standing 7 percentage points below the national value and the unemployment rate surpassing it by 4.6%. The gaps in both indicators, however, have been closing vis-à-vis the national trend since the crisis. At the local level, Outokumpu has lower employment rates and higher unemployment rates than in North Karelia and its broader local labour market. Although the rate of employment has improved in the local economy, the rate of unemployment rates increased the highest locally against all other municipalities in the local labour market since the crisis.  This suggests that although Outokumpu is integrated in the LLM of Joensuu, this integration can be strengthened.

The impacts of the crisis and structural shifts in the regional economy have had particular impacts on employment opportunities for younger people and older workers. This finding reinforces the point that a more proactive approach is needed in terms of workforce development and skills with a particular focus on transition pathways for these groups.

The municipality has been undergoing a long-term structural shift from a mining producer to one specialised in subcontracting and exports of metal technologies and mining services.  Tradable activities still dominate the local economy, particularly manufacturing, but the mining sector has contributed to positive growth during the crisis. The local economy experiences positive enterprise growth, although entrepreneurship is still relatively low due mainly through a lower share of the high-skilled labour force than in the broader local labour market. Low levels and declining rates of entrepreneurship means there is a less dynamic labour market and reduced potential for economic diversification. Improving the local environment for entrepreneurship is another area for future policy change.

copy the linklink copied!Well-being and quality of life

Eastern and Northern Finland have a high quality of life in an OECD context. Figure 1.30 reveals that Eastern and Northern Finland (TL2) performs above the average OECD region in eight dimensions of well-being. This region comprises seven TL3 regions (Kainuu, Lapland, Central Ostrobothnia, Northern Ostrobothnia, North Savo, South Savo and North Karelia) which share similar characteristics in terms of natural resource specialisation and low population densities (OECD, 2017[14]). In an OECD context, the region ranks particularly high in environmental quality and life satisfaction and lower in terms of income, jobs and civic engagement. The largest difference was recorded in the income dimension, where Eastern and Northern Finland had about 28% lower income than the average OECD region.

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Box 1.4. OECD Regional Well-being Indicators

Building comparable well-being indicators at a regional scale

The OECD framework on measuring regional well-being builds on the Better Life Initiative at the national level. It goes further to measure well-being in regions with the idea that measurement is more meaningful where people experience it. Besides place-based outcomes, it also focuses on individuals since both dimensions influence people’s well-being and future opportunities.

In line with national well-being indicators, regional well-being indicators concentrate on informing about people’s lives rather than on means (inputs) or ends (outputs). In this way, policies are directed to well-being features that can be improved by policies. Regional well-being indicators also serve as a tool to evaluate how well-being differs across regions and groups of people.

Regional well-being indicators are multi-dimensional and include both material dimensions and quality of life aspects. They also recognise the role of citizenship, institutions and governance in shaping policies and outcomes.

Although well-being dimensions are measured separately, the aim of the regional well-being framework is to allow for comparisons and interactions across multiple dimensions to account for complementarities and trade-offs faced by policymakers. At the same time, the comparison of regional well-being indicators over time allows comparing dynamics of well-being over time, as well as the sustainability and the resilience of regional development.

Regional well-being in Finland is measured in 12 well-being dimensions: income, jobs, housing, health, access to services, education, civic engagement and governance, environment and safety – for which there are comparable statistics at the regional level – and 3 additional dimensions: work-life balance, community (social connections) and life satisfaction, which are available only at national level in the OECD database due to lack of comparable data at the subnational level. Table 1.8 details the indicator used for each dimension.

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Table 1.8. Indicators by well-being dimension, North Karelia

Dimension

Indicator

Environment

Level of air pollution in PM 2.5 (µg/m3), 2013

Community

Perceived social network support (scale from 0 to 10), 2013

Life satisfaction

Life satisfaction (scale from 0 to 10), 2013

Civic engagement

Voters in last national election (%), 2015 or latest year

Jobs

Employment rate (%), 2014

Unemployment rate (%), 2014

Safety

Homicide rate (per 100 000 people), 2013

Housing

Rooms per person, 2013

Health

Life expectancy at birth (years), 2013

Age adjusted mortality rate (per 1 000 people), 2013

Access to services

Households with broadband access (%), 2014

Education

Labour force with at least upper secondary education (%), 2014

Income

Disposable income per capita (in USD PPP), 2013

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Figure 1.30. Well-being dimensions, TL2, 2014
Figure 1.30. Well-being dimensions, TL2, 2014

Note: OECD average = 100.

Source: Calculations based on OECD (2019[15]), “Regional well-being”, http://dx.doi.org/10.1787/data-00707-en (accessed on 21 March 2019).

Quality of life is important for a municipality like Outokumpu for retaining and attracting people, particularly of working age. Outokumpu benefits from its environmental amenities, proximity to Joensuu and affordable housing. These basic locational assets provide an attractive offer for people of working age. The slack in the local housing market is a potential downside as people may be reluctant to purchase a house, or landlords make investments, due to low potential for price appreciation. Incomes in Outokumpu are also lower along with education and health outcomes, and civic participation.

The quality of life in Outokumpu undertaken by this analysis follows the OECD multi-dimensional well-being framework to assess the current level of well-being in Outokumpu but focuses on dimensions, which are considered to impact on individual’s well-being. Due to data limitations, the indicators used differ from the OECD well-being framework to some extent.

In terms of material conditions, having sufficient income and housing are preconditions for a good quality of life. The income level of Outokumpu is lower than the regional and national averages as well as the LLM average:

  • In 2017, the mean disposable monetary income of a household-dwelling unit was USD 33 743 thus about 79% of the national average and 92% of the LLM average (Statistics Finland, 2019[3]).

  • The share of families with children in Outokumpu receiving social assistance was much higher than the LLM average and the national/regional average. In 2016, the share stood at 3.4% in Outokumpu, whereas the LLM and the national average were at 2.6% and 3%, respectively (National Institute for Health and Welfare, 2019[13]).

  • The declining population has resulted in slack in the local housing market – privately owned rental apartments have a lower average price per square metre than the social ones (EUR 8.89 per square metre compared to EUR 10.22 per square metre).

The aspects that matter to an individual’s quality of life are good health, education, social connections, civic engagement, environmental quality, safety, access to services and life satisfaction. Outokumpu performs high in terms of environmental quality, as the air quality was better in Outokumpu than on average in the country, region and LLM. In respect to other aspects of quality of life, Outokumpu is not very competitive in relation to its LLM and national average.

  • The education level of the population in Outokumpu is lower than the LLM average and the share of population aged 17-24 not in education or training (7.3%) was higher than the regional and LLM average of 7% and 7.1% (National Institute for Health and Welfare, 2019[13]).

  • The age-standardised morbidity index constructed by the National Institute for Health and Welfare was higher in Outokumpu than in the LLM on average (National Institute for Health and Welfare, 2019[13]).

  • The level of civic engagement in Outokumpu (56.3%) is below the national level of 58.9% but above the regional level of 55.1% (National Institute for Health and Welfare, 2019[13]). Compared to its LLM, the civic engagement in Outokumpu is slightly lower, by 0.5 percentage points.

Summary

The evidence shows that over time, the standard of living is improving in North Karelia. The region can offer a relatively high quality of life in an OECD context. This is important for the future in terms of competing to retain and attract working-age people in the context of an ageing population. However, these trends are uneven across the region as shown in the data that is available for Outokumpu. A key challenge for Outokumpu and North Karelia is continuing to invest in improving local amenities and services, and putting in place proactive strategies to link younger people who live in the region with further education, training, employment and entrepreneurship opportunities.

References

[1] Brezzi, M., L. Dijkstra and V. Ruiz (2011), “OECD Extended Regional Typology: The Economic Performance of Remote Rural Regions”, OECD Regional Development Working Papers, No. 2011/6, OECD Publishing, Paris, https://dx.doi.org/10.1787/5kg6z83tw7f4-en.

[5] GTK (2014), “Quantitative assessment of undiscovered resources in volcanogenic massive sulphide deposits, porphyry copper deposits and Outokumpu-type deposits in Finland”, https://www.researchgate.net/profile/Pasi_Eilu/publication/270574150_Quantitative_assessment_of_undiscovered_resources_of_volcanogenic_massive_sulphide_deposits_porphyry_copper_deposits_and_Outokumpu-type_deposits_in_FinlandEletronic_resource_Geologian_tu.

[9] Ivanova, G. (2014), “The mining industry in Queensland, Australia: Some regional development issues”, Resources Policy, Vol. 39, pp. 101-114, http://dx.doi.org/10.1016/J.RESOURPOL.2014.01.005.

[4] Mining Finland (n.d.), Opportunities, http://www.miningfinland.com/opportunities (accessed on 5 April 2019).

[8] Mitchell, C. and K. O’Neill (2016), “Tracing economic transition in the mine towns of northern Ontario: An application of the “resource-dependency model””, The Canadian Geographer/Le Géographe canadien, Vol. 60, http://dx.doi.org/10.1111/cag.12238.

[13] National Institute for Health and Welfare (2019), Sotkanet.fi Statistics and Indicator Bank, https://sotkanet.fi/sotkanet/en/haku?indicator=s050BgA=&region=szZ3tc7UM7Q28wFRAA==&year=sy6rsjbX0zUEAA==&gender=t&abs=f&color=f&buildVersion=3.0-SNAPSHOT&buildTimestamp=201802280718 (accessed on 21 March 2019).

[6] OECD (2019), OECD Regional Statistics, http://dotstat.oecd.org/?lang=en# (accessed on 22 February 2019).

[15] OECD (2019), “Regional well-being”, OECD Regional Statistics (database), https://doi.org/10.1787/data-00707-en (accessed on 21 March 2019).

[11] OECD (2018), OECD Regional Statistics, https://www.oecd-ilibrary.org/urban-rural-and-regional-development/data/oecd-regional-statistics_region-data-en (accessed on 3 December 2018).

[10] OECD (2017), “Mining regions and their cities: Scoping paper”, http://www.oecd.org/cfe/regional-policy/Scoping-paper.pdf (accessed on 27 March 2019).

[14] OECD (2017), OECD Territorial Reviews: Northern Sparsely Populated Areas, OECD Territorial Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264268234-en.

[2] OECD (2016), OECD Economic Surveys: Finland 2016, OECD Publishing, Paris, https://dx.doi.org/10.1787/eco_surveys-fin-2016-en.

[12] Outokumpu Mining Oy (2019), History of Outokumpu, https://www.outokumpu.com/about-outokumpu/history-of-outokumpu (accessed on 20 February 2019).

[3] Statistics Finland (2019), Statistics Finland (database), http://pxnet2.stat.fi/PXWeb/pxweb/en/StatFin/?rxid=0f873e06-3422-4e82-b2db-89fa81f7bbad (accessed on 13 March 2019).

[7] Stimson, R., R. Stough and B. Roberts (2006), Regional Economic Development: Analysis and Planning Strategy, Springer.

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Chapter 1. Drivers of growth and challenges for regional development