In the 90's Finland switched to the Euro, they had years of prosperity before and after taking on the European Union's Currency but since 2007-2008 crisis Finland has not been able to maintain steady GDP growth. From this economist article, things will not take on a positive turn in the coming year: "Short-term data suggest that the economy will be flat in early 2016, says Jussi Mustonen, chief economist at the Confederation of Finnish Industries".
One of the main causes of this decline comes from their biggest company: Nokia, which was responsible for a quarter of growth in Finland. Nokia was once the largest producer of mobile phones, but in recent years it has been unable to keep up with the technological demands and advances for smartphones.
An additional problem, is increased wages for lower productivity. Even though in class we find that an increase in productivity coincides with an increase in wages, the opposite is happening in Finland, their wages are 10%-15% higher than trading partners, making Finland a costly country for companies. A shrinking workforce does not help the increased wages. As the work force decreases Finnish companies need to "steal" able bodied workers from other companies through incentives like higher wages.
To add to the negative effects on the economy exports to Russia have decreased from 10%- 5.8% furthering harming Finland's GDP. In addition, Finland has GDP 3% deficit. Finland ranks second globally for innovation, including a $1.8 billion incentive plan. In addition, wages and labor have been harmed by their national collective bargaining approach, which has caused the wages to stay higher and not reach an equilibrium. This does not help when it is coupled with an inability for companies and workers to reach a medium on increasing working time, to balance with the increased wages. In all Finland has a long road ahead, and needs to lower domestic costs, so they can be more competitive with neighboring countries.
I had no idea Nokia was in Finland. I remember so many people used to have their phones when we were younger and now I don't think I've seen a Nokia in years.
ReplyDeleteThis is one of the more interesting economic articles I have recently read. With Nokia having been near entirely irrelevant in the last decade it is almost surprising Finland has not had to navigate through even harsher economic circumstances as Nokia had provided a quarter of their growth. My observation/question was that if they are globally ranked as second for innovation, then does this trend of innovation justify their 10-15% increase in wages? Further, has their shrinking of the work force been due to job separations or job findings?
ReplyDeleteThis article is very insightful. I found it crazy how one company had such a big impact that they basically controlled the entire economy. It's also surprising how the market is so desperate for labor that the wages cannot reach equilibrium I had never thought of a circumstance like this.
ReplyDeleteIt would be interesting to find out if the government has plans or has in the past tried to support Nokia with any benefits, and the results of that. We have seen that while bailing out major companies in the U.S resulted in stablizing the economy while also putting it back on its track, but no one knows if the long terms effects are worth the absurd funds required. Finland could be a real life test site in this case if Nokia continues on its downwards trend.
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