Hanna Valve is employed as a prototype seamstress at the production plant of Isku in Lahti. The furniture design company has centralised its manufacturing activities in Lahti in an attempt to boost its competitiveness.The employment situation is contingent on two factors: the rate of job destruction and the rate of job creation.

“Every year, some 17,000 jobs are destroyed in Finland and roughly as many jobs are created,” says Mika Maliranta, a research director at the Research Institute of the Finnish Economy (ETLA) who has authored a number of studies on competitiveness and the factors contributing to it.

There are two distinct types of competitiveness, according to Maliranta, both of which are related directly to jobs

Job destruction is largely a consequence of the cost of production inputs or short-term competitiveness: What is the cost of labour, the cost of energy, the cost of raw materials, the cost of transportation?

Unit costs are then determined by comparing the said costs against added value. “Manufacturing companies make decisions on the location of their production activities on this basis. They look at value creation in relation to costs,” explains Maliranta.

Other factors can also weigh in on the decision-making process. The country of origin and other factors associated with reputation can tip the scales in favour of Finland in the field of consumer products, even if a cost comparison suggested production should take place elsewhere.

Such cases are the exception, however.

Job creation is both difficult and painstaking. The most efficient means to improve the employment situation is thus to prevent job destruction by lowering the cost of labour or other production inputs, argues Maliranta. The Finnish Government has turned its attention especially to labour costs – and rightfully so as they remain the most important contributing factor, according to him.

Let's examine a counter-argument: with labour costs only accounting for a few per cent of the total costs of a paper mill, for example, what exactly are the benefits of cutting wages?

“You aren't seeing the forest from the trees. Even if the wage costs of a particular company are relatively low, you have to keep in mind that general labour costs also affect the cost of other production inputs. Labour costs make up a large share of material, energy and transportation costs,” Maliranta points out.

The labour force consequently represents a considerably cost item for the national economy as a whole.

The competitiveness of Finland has eroded in comparison to its rival economies in the wake of crises in the forest and technology industries as labour costs have, effectively, risen too much in comparison to added value.

“The industries have deteriorated at a rate that indicates that there's some kind of competitiveness problem. Slowing down the rate of destruction would be beneficial because modernising the manufacturing sectors will take time.”

That brings us to job creation.

The industrial structure cannot be modernised without taking decisions to promote it. “Decisions on wages and taxation are a prerequisite for the creation of jobs with a high added value. Investments in research and education are also important,” Maliranta says.

Nor does it mean that we have to wait a decade for new inventions.

“Companies take into account the life-cycles of jobs as they mull over investments and recruitments,” Maliranta says. “It's crucial for them to know how things will develop over the next 10–20 years.”

Companies will require some assurances of the development of productivity and taxation as well as of the availability of competitively-priced manpower.

It is futile for the central administration to imagine it has the foresight to select certain industrial sectors for investment, according to Maliranta. The main priority must be to create the preconditions for innovations and then let the markets determine the future of sectors.

Anni Lassila – HS
Aleksi Teivainen – HT
Photo: Juha Metso