Structural employment measures aimed at strengthening public finances are in fact budget cuts, and not an alternative to cuts as they are being presented, according to a report by two prominent Finnish trade unions and the umbrella organisation for the social and health care sector SOSTE.
The Confederation of Finnish Trade Unions SAK, the Central Organization of Employees STTK and SOSTE made the statement after examining the employment measures proposed by the Ministry of Finance.
"When you talk about employment measures, it is important that the public understands whether this is a case of abstract, vague restructuring or a cut. Of course, cuts may be a valid way to strengthen public finances, but it is good to be clear about what is at stake," said SAK's chief economist Ilkka Kaukoranta.
In balancing public finances and curbing debt, the remedy is usually to raise taxes or reduce spending. When neither is preferred, politicians, officials and experts often present structural reform as an alternative.
Employment measures "would lead to €1bn in cuts"
In August 2020, the Ministry of Finance introduced employment measures that were estimated to create 60,000 jobs.
However, according to the report by SAK, STTK and SOSTE, the proposed employment measures would lead to cuts of more than one billion euros.
The actual number is estimated to be much higher, but as it is not possible to estimate the magnitude of all budget cuts, these are not included in the amount.
According to the Ministry of Finance's calculations, each additional employee strengthens public finances by 23,500 euros. These calculations mean that an additional 60,000 employees would generate 1.4 billion euros in income.
Jobs and budget cuts would thus bring a total of 2.5 billion euros to the public finances, and the cuts would account for at least 43 percent of the rebalancing of the budget.
Employment measures that rapidly improve public finances have been highlighted in the report. These measures are mainly cuts to social security and unemployment benefits.
For example, investments in education and employment support are not popular, as they increase public spending and the benefits of education, in particular, will not produce results in the short-term.
STTK chief economist Patrizio Lainà says employment measures are greatly limited by the fact that they are not allowed to increase costs.
"All that is left in the tool kit are cutting mechanisms. There is only a slight hint of employment measures that would strengthen public finances without any cuts," Lainà says.
Unemployed and low-income people suffer most from the cuts
Structural reform is not progressing, as these are often political passion projects and different partners disagree on what needs to be done.
Of these measures, the elimination of the 'pension pipeline' is progressing as part of the employment plan for 55-year-olds. Currently, the scheme (eläkeputki in Finnish) allows workers close to retirement age who become unemployed to claim higher, income-linked jobless benefits for an extended period until they can claim their pension.
According to Lainà, the loss of this measure is a small sacrifice compared to the employment benefit.
"The employment benefit of these cuts is surprisingly good, employment improves a lot compared to the cuts. This is more of a structural reform than many of these other reforms," Lainà says.
It is estimated that 9,000 more jobs will be created through these spending cuts of almost 70 million euros.
In regard to certain budget balancing measures, such as the staggering of earnings-related unemployment insurance, the government is sharply divided and no official proposal has been made.
The reductions in public expenditure related to employment measures mainly affect low-income earners.
As a result, the jobs available would not be worth accepting, were it not for the weakened position of the unemployed, according to the report.
Some of the measures proposed by the Ministry of Finance have not been of interest to the current government and have not come up for public debate.
The biggest savings, 700 million euros, have been estimated to result from the elimination of pension accumulation from unemployment insurance. There would be no pension accrued during periods of unemployment, which is thought to encourage job search.
Rotation leave (vuorotteluvapaa in Finnish) is on the chopping block because it has not been considered to help increase employment. The Ministry estimates that the elimination of financial support for adult education will increase employment figures, because the opportunity is mostly taken advantage of by well-educated people for whom jobs are already available. When they are at school, however, they are not part of the workforce.
By limiting unemployment benefits, the intent is to limit studying so that it does not take people out of the workforce. These measures, however, may be pushed onto the next government’s agenda.
Employment goals too optimistic
Calculations of how far the government is from meeting their employment targets are unclear. In the spring budget talks, the government said it had decided on measures that would reach more than 40,000 potential workers. The Ministry of Finance estimate for the same measures, however, was only 11,000 new jobs.
In last autumn’s budget talks, the government said it had agreed on measures that would create 31,000 to 36,000 jobs.
An employment rate of 75 percent, or an additional 60,000 jobs, was the government's original goal in strengthening the sustainability of public finances. The revenue generated by increased employment was intended to cover a significant part of the permanent expenditure increases of 1.2 billion euros.
Covid changed the scenario by increasing the timeframe by another three decades, but even so, 80,000 new jobs now need to be created.
According to Kaukoranta, these were unrealistic expectations to begin with. The increase in jobs during former PM Juha Sipilä’s (Cen) tenure, when Finland experienced an economic upturn, gave an overly optimistic picture of job creation. Kaukoranta thinks employment measures will no longer be overemphasised in the next parliamentary term.
"If we want to make up for the sustainability gap, it would only be realistic to consider spending cuts and tax increases," he said.
Every government has a favourite agenda. During Jyrki Katainen's (NCP) government term, the focus was on credit ratings, the last election focused on competitiveness and in this year’s election the mantra has been on increased employment, Kaukoranta says.