What is the solution to Finland’s labour market mismatch?

What is the solution to Finland's labour market mismatch?

Jobs in more traditional sectors such as logistics and transport have been declining in Finland, however, more than 40,000 jobs in the service sector have been created in recent years.

(OECD/ITF/Marco Urban, Marc-Steffen Unger, Simone Neumann)

While Finland may have struggled to shake off its post-crisis recession, last year the country saw GDP growth of 1.6 per cent, and the trend is forecast to continue this year. In this light, it would be easy to interpret Finland’s labour shortage as a sign of a healthy growing economy.

According to the Minstry for Employment and Economic Affairs, 24 occupations – such as audiologists and speech therapists, dentists, civil engineers and salespeople – are currently affected by a deficit of skilled workers. Last year only 12 occupations were affected.

In April, the Ministry listed 102,300 vacancies but at the same time, over 300,000 people were seeking work – some 11.6 per cent of the workforce.

This mismatch in the Finnish labour market is not a new phenomenon. Finland suffered a deep depression in early 1990s following the collapse of the neighbouring Soviet Union and the liberalisation of a relatively protectionist post-war economy.

When growth and employment finally recovered during the latter half of the decade, vacancies increasingly went unfilled. This trend sharpened in the wake of the 2008 financial crisis: the latest recession has seen some 60,000 industrial jobs disappear. At the same time, 40,000 jobs have been created in the service sector.

Arja Haapakorpi, adjunct professor at the University of Helsinki, outlines several reasons for the problem. Firstly, the nature of work has changed: "The everyman’s job market has disappeared. In the 1980s there were still jobs that only required basic education, such as cleaning and work in logistics and harbours.” Nowadays, this kind of work is usually part-time and increasingly precarious.

Finland also carries a legacy of long-term unemployment from the depression of the 1990s. Those who have been out of work for such a long time often find themselves with the wrong type of qualifications for today’s labour market, says Haapakorpi.

In addition, she lists geography as a factor for the mismatch. In Finland, a population of just over five million people populate an area almost the size of Germany. As a result, the supply of jobs is often separate from the demand. "Partly, it is a problem of a scarcely populated country. But job seekers are willing to move if their life circumstances allow. Over 4,000 people applied to build cars in in southwestern Finland, a large part from outside the immediate area,” she says referring to the Valmet Automotive car plant in Uusikaupunki, which recruited 1,060 new employees this March and April.

Policy solutions needed

In its mid-term policy review in April, the Finnish government promised to increase incentives for people to take on work further away from where they live. In a recently introduced scheme, if a person spends over three hours on their daily commute – or two hours to part-time work – they can receive a subsidy.

The government now plans to further broaden this scheme to cover recruitment and training, and it may also reduce the minimum number of hours a week an employee has to work to qualify. The scheme will also be better advertised to the job seekers who could benefit from it. In addition, the government is revising a tax credit scheme that supports employees to rent an apartment where they work.

But the Central Organisation of Trade Unions (SAK) thinks the government needs to do more. Pirjo Väänänen, head of employment issues at SAK, tells Equal Times: "Unemployed workers need personal support and services that will assist them finding work. The government is doing more interviews and personal planning to help the unemployed find paths into employment. This is welcome, because staff levels at job centres have been cut in recent years which has left the unemployed all too often without support."

However, Väänänen is concerned about a raft of new measures that she says will adversely affect the unemployed. "The government has cut unemployment support and increased its conditionalities, and it is planning to do this further, for example, through a model that requires the unemployed to demonstrate that they are active to maintain their full benefits.

“We believe this does not create jobs but instead has a negative impact on people’s livelihoods, increasing the risk of marginalisation." SAK is also calling on the government to make parental leave more flexible to help young women, in particular, find employment.

Unemployment among immigrants in Finland is two to five times higher than average. The Ministry of Economic Affairs and Employment is matching unemployed immigrants with employers who need skilled labour through an experiment that uses private investment in the form of Social Impact Bonds. The project aims to offer education, training, apprenticeship and employment opportunities to 2,500 immigrants in the next three years, and will receive €10 million from the European Investment Fund.

More immigrants could be helped to enter the Finnish labour market through language training, and resources should be put into recognising the skills and qualifications that immigrants already possess, says Väänänen. The lack of existing networks can make it harder for them to find work, so job centres should provide more individual services.

"Immigrants should not be seen as a separate group that can be employed under worse conditions to remedy labour shortages," she warns.

Affordable housing in areas where there are jobs is another possible solution to help close Finland’s labour gap, both Väänänen and Haapakorpi suggest. In addition, Haapakorpi also highlights the role of training and re-training. "More resources should be put into vocational training so that no one is being trained for a dead end job.”

In addition, she calls for better vocational training: “It also worries me that there is so much reliance on training provided by employers. According to the Scandinavian ideology, vocational training should also equip people for higher education, so the public sector should ensure everyone’s right to a good education. That is also in the interest of society," she says.

Local solutions, a Europe-wide problem

There are a number of local solutions aimed at tackling the paradox of Finland’s labour shortage and its unemployment rate, which is higher than the current eurozone average of 9.5 per cent . One of them is a project called YTYÄ! Ylä-Savossa on työtä, which loosely translates as "Power! There is work in Upper Savonia". It aims to match unemployed workers with jobs in the eastern Finnish sub-region (of Northern Savonia).

With 12.4 per cent unemployment, the jobless rate in Northern Savonia is slightly above the national average, but the figure reflects a divided country. All the regions with below-average unemployment figures are in south and west of the country, which is also where the largest cities, such as Espoo, Turku, Tampere and the capital city of Helsinki, are found.

Tiina Juutinen, who is leading the project, explains: "Employers and entrepreneurs in different sectors had expressed concerns about the supply of labour for some time, as had the public authorities. The city of Iisalmi entered talks with them, and the need for a project improving employment was identified. The Upper Savonia Institute for Vocational Training is also part of the project."

The project will identify 100 unemployed people who would benefit from training and coaching to update their skills to match vacancies. But it also aims to create a positive image of the Upper Savonian labour market.

Juutinen explains that the region is losing inhabitants through movement to bigger cities, which is exacerbated through reforms that centralise public services. Long commuting distances are also a challenge: there is little or no public transport in Upper Savonia, and not everyone has a car.

But the mismatch between the supply and demand for labour is not limited to Finland. Spain and Italy, for example, have large labour market imbalances between regions: the southern Italian region of Calabria has only 39 per cent employment, whereas the figure for Bolzano near the Swiss border is 71.5 per cent. Meanwhile, eastern and central European countries such as Poland and Hungary experienced high levels of emigration, especially of qualified workers, during the economic crisis. Despite the fact that both economies are in recovery, they are still short of skilled labour.

On the other side of the equation, Germany is remedying its labour shortage in the industry and service sectors by recruiting workers from abroad. Germany receives approximately 300,000 seasonal workers per year, mainly to work in the restaurant sector and as farm labourers. But it also attracts young people from other EU countries to attend vocational training, thereby securing a skilled workforce for German employers.

The German government is also taking measures to ease the entry of immigrants into the labour market, by facilitating the recognition of foreign qualifications and easing the regulations on residency rights and employment permits for skilled workers outside the EU. This is something the Finnish government is likely to study closely, as it is planning reforms on immigration law to bring in non-EU workers.