Report: Finnish economy’s greatest challenge is its low labour productivity compared with closest competitors

Ministry of Economic Affairs and Employment 4.2.2020 12.30 | Published in English on 6.2.2020 at 12.55
Press release

Since 2008, productivity growth in Finland has been weaker than in its closest competitor countries. Unlike its competitors, Finland has failed to benefit from technological development or ICT investments that would have generated productivity growth, says Matti Pohjola, Professor of Economics at Aalto University, in his report.

The report, commissioned by the Ministry of Economic Affairs and Employment, focuses on productivity development in Finland over the past few decades. It examines the role productivity plays in economic growth, and the importance of technology and investment as drivers of development.

Why is Sweden ahead in productivity?

Since last decade, labour productivity growth has been slowing down in all industrialised countries. In Finland, however, this development has been more drastic than in the reference countries Sweden, Germany and the United States.

The report focuses on the differences between the economic structures and productivity development in Finland and Sweden. It takes Sweden just nine days to produce the industrial output that takes ten days in Finland. Hours worked do not account for this difference; it can be attributed to productivity.

Compared to Finland, Sweden enjoys higher productivity growth in the service sector. According to the report, Sweden’s lead is largely based on productivity development in competence and information intensive services, which has been stronger than in other sectors.

“Unlike in Finland, investment in the service sector in Sweden has been growing, along with productivity and exports. These findings give us much to think about,” says Permanent Secretary Jari Gustafsson.

Measures needed to build a stronger innovation policy

In his report, professor Pohjola also draws conclusions on how policy measures could best promote productivity development. He suggests a familiar course of action: investing in education and new technologies, deregulation, and promoting competition.

However, policy measures as drivers of productivity produce results slowly, and the effects are indirect. According to Pohjola, all measures are justified that support the creation, introduction and spread of new ideas, and that promote the transfer of production resources from declining to thriving industries.

Inquiries:

Seppo Kangaspunta, Ministeral Adviser, Ministry of Economic Affairs and Employment, tel. +358 295 063 747
Matti Pohjola, Professor, Aalto University, tel. +358 50 321 0260