The key export sectors of Finland – Chemical, Forest, and Technology Industries – have collectively commissioned a series of studies related to the export industry.
The Economic Impacts of Export Industry in Finland: Over 46% of Gross Domestic Product, Nearly 1.1 Million Jobs
Export industry companies directly and indirectly contribute to over 46 percent of Finland’s gross domestic product. Almost 1.1 million Finns are employed due to the export industry. Ten jobs within the export industry create 13 jobs across other sectors.
The total impact of the export industry on value added was 90 billion euros in 2017, accounting for over 46 percent of Finland’s GDP value added, which stood at 193.3 billion euros in 2017. This encompasses the direct impact of exporting companies, indirect effects on other sectors, as well as the additional contribution of export companies to private consumption and thereby to the national economy. The export industry contributed more than 28 billion euros in tax revenue to Finland last year.
Economic Impacts of Export Industry in Finland:
- The export industry generates nearly 1.1 million jobs in Finland, accounting for 43% of all jobs.
- 10 jobs within the export industry lead to the creation of 13 jobs elsewhere in the economy
- The impact on services is particularly significant: each job within an export company creates more than one job in services
- The value added to the economy by the export industry is 90 billion euros, representing over 46% of GDP value added
- The export industry contributes over 28 billion euros in tax revenue to Finland
These findings are based on a study conducted by KPMG Oy Ab on behalf of Technology Industries of Finland, Chemical Industry Federation of Finland, and Finnish Forest Industries Federation. KPMG also utilized expertise from the University of Oulu in the calculations. The study focused on the year 2017 and examines the entire Finnish export industry. The role of technology, forest, and chemical industry companies in exports is absolutely pivotal according to the report prepared by KPMG.
Finnish Export Industry Among Global Leaders in Comparison of Environmental Indicators by Country
In Finland, the environment is well cared for through both regulation and the industry’s voluntary commitment to sustainability. The environmental burdens stemming from industrial activities in the majority of the compared competitor countries are greater than those in Finland. Industrial production within Finland, as well as investments made in the country, can be regarded as environmentally conscious actions.
Gaia Consulting Ltd. conducted a comparison of Finland and its Finnish export industry on an international scale using various indicators describing environmental impacts, the prevailing environmental conditions, and the availability of natural resources. The study was primarily based on OECD statistics.
The themes examined in the study were 1) energy and climate change, 2) air quality, 3) natural resources, 4) operational environment, and 5) circular economy. When comparing Finland to the average of EU and OECD countries, Finland’s performance is superior to the average across almost all indicators.
Finland achieved the highest ranking among the comparison countries in several areas:
- Fine particulate emissions per unit of energy consumption,
- Proportion of forest area,
- Ecological status of surface waters,
- Cleantech innovation environment.
In a total of seventeen indicators analyzed in the study, Finland ranked in the top third among the comparison countries in thirteen indicators. Among the themes, air quality specifically emerged as a strength for Finland compared to other countries: Finland ranked in the top third in the theme for all the indicators used.
The study conducted in the autumn of 2018 by Gaia Consulting Ltd. was commissioned by the Chemical Industry Federation of Finland, the Finnish Forest Industries Federation, and the Federation of Finnish Technology Industries. Among the EU countries, the analysis included Belgium, Spain, the United Kingdom, Poland, Sweden, Germany, and Estonia. Additionally, other OECD countries considered were Australia, South Korea, Japan, Canada, and the United States. Outside the OECD, the countries for comparison were Brazil, India, China, and Russia. In addition to assessing Finland’s performance against these competitor countries, the study examined Finland’s ranking in relation to the EU average and the overall OECD average. Finland and Sweden consistently ranked in the top third more frequently than other countries.
Finland needs a healthy discussion about the competitiveness factors of its industry
From the perspective of export industries, Finland has several strengths in international competition, such as a stable society and well-educated citizens. Nevertheless, the development of industrial investments, profitability, and merchandise exports lags behind many competitor countries. What are Finland’s competitor countries doing, and does it matter?
In Finland’s key competitor countries, efforts are being made to improve the industrial operating environment and attract investments in various ways. Factors influencing the success of the industry include government program guidelines, tax solutions, subsidies, as well as the predictability of policies and export orientation.
The key observations from the report on Finland and its key competitor countries are as follows:
- In Finland’s key competitor countries, efforts are made to improve the industrial operating environment and attract investments.
- Germany’s government programs strongly reflect a pro-industry attitude.
- Expertise and innovations thrive when they lead to production or other business activities.
- Innovations and expertise often build upon existing production.
- Innovative product development and industrial operations are not separate functions.
- In Finland, the energy cost for energy-intensive industries would be significantly higher than in key competitor countries without lower electricity tax and, especially, energy tax refunds.
- The share of state aid is smaller in Finland and Sweden (less than 1% of GDP) compared to competitor countries such as the Czech Republic, Germany, and Poland (over 1% of GDP).
- In terms of the general functioning of society, Finland performs excellently compared to competitor countries.
Pöyry Management Consulting Oy conducted a study on behalf of the Chemical Industry Federation of Finland, the Finnish Forest Industries Federation, and the Federation of Finnish Technology Industries. The study involved statistical and data analysis as well as company interviews to explore competitiveness factors considered essential from the perspective of export industries and of interest in societal discussions. The aim of the study was not to rank countries but to provide insights into the reality faced by the industry in international competition.
The Employment Impact of the Competitiveness Pact (Kiky Agreement) Was Significant – Finnish Workweek Still Shorter than EU Average
According to a study published on August 12, 2019, by the Research Institute of the Finnish Economy (Etla), the Competitiveness Pact (Kiky Agreement) had a positive impact on employment and improved Finland’s competitiveness. The extension of working hours accounted for approximately 40 percent of the improvement in employment, while the remainder of the employment effects of Kiky resulted from reductions in social security contributions and taxation. The study also examined working hours from the perspectives of employment and competitiveness. It revealed that the average weekly working hours of Finns are slightly less than one hour shorter than the EU countries’ average.
The significance of working hours for competitiveness and employment is determined by labor costs and productivity. Changes in working hours support employment and competitiveness when they reduce labor costs or increase productivity. The Competitiveness Pact, which came into effect in 2016, not only increased employment in Finland but also enhanced relative competitiveness, as indicated by a research report titled “Working Hours, Employment, and Competitiveness” (Etla Report 92) published today by Antti Kauhanen and Markku Lehmus.
The extension of working hours was just one aspect of the Kiky Agreement. According to the recent study, the extension of working hours accounted for approximately 40 percent of the improvement in employment, while the rest of the employment effects were attributed to the reduction in labor costs, including reductions in social security contributions and taxation.
To achieve the government’s target of a 75 percent employment rate, at least 40 000 additional jobs would be required in addition to those expected to be created based on forecasts. This necessitates measures of a similar magnitude to those implemented by the previous government. This assessment is based on Etla’s economic forecast from March 2019.
Extending working hours alone will not achieve a 75 percent employment rate, but it still has an impact, according to Markku Lehmus, Chief Economist at Etla.
– Extending working hours is expected to increase employment by approximately 8,000 to 16,000 people by 2022, says Lehmus.
Finnish Workweek Still Shorter than EU Average
In Finland, the average weekly working hours for all employed individuals are nearly an hour shorter than the EU countries’ average. Both full-time and part-time workweeks in Finland are shorter in comparison to European counterparts, primarily because part-time work is relatively rare in Finland. Additionally, holidays, public holidays, and other absences reduce working hours more in Finland than in most other European countries.
The impact of extending or reducing working hours on employment depends significantly on how these changes affect labor costs and work productivity. Reducing working hours is often proposed as a solution to increase employment, but this is not always the case, warns Antti Kauhanen, Research Director at Etla.
– If the idea is that when each worker works less, there is enough work for more workers, this approach may not be effective. The impact of reducing working hours on employment primarily depends on how profitable it is to employ people. If reducing working hours does not result in a reduction in monthly earnings such that hourly earnings remain the same, fewer jobs are created and more jobs are lost than before, says Kauhanen.
The comparative analysis of working hours in the research report is based on the latest labor force survey from Eurostat, the European statistical agency. The second part of the report examines the significance of the Competitiveness Pact for employment and Finland’s competitiveness, utilizing the macroeconomic model of the Finnish Institute of Economic Research. The analysis differentiates between the extension of working hours and the effects of reductions in social security contributions and taxation on the employment impacts of the Kiky Agreement. The research was commissioned by the Federation of Finnish Technology Industries, the Chemical Industry Federation of Finland, and the Finnish Forest Industries Federation.
Kauhanen, Antti – Lehmus, Markku: Working Hours, Employment, and Competitiveness (Etla Report 92)
For more information:
Research Director Antti Kauhanen, Etla, +358 50 569 76 27, email@example.com
Chief Economist Markku Lehmus, Etla, +358 44 549 84 55, firstname.lastname@example.org
Export Sector Employers’ Associations: Surprisingly Significant Employment Effects from Extending Working Hours
As part of the Competitiveness Pact, the extension of working hours has strengthened a positive trend in employment, which should not be interrupted, according to the employer associations of the Finnish export industries: Technology Industries, Chemical Industry, and Forest Industry.
According to a study published today by the Finnish Institute of Economic Research (Etla), 40 percent of the effects of the Competitiveness Pact result from extending working hours by 24 hours. The remaining employment effects are attributed to reductions in social security contributions and taxation.
Extending working hours will create 8,000 to 16,000 jobs by 2022. The current government aims for a 75 percent employment rate, which means, according to Etla’s estimate, an additional 40,000 jobs are needed on top of those expected to be created based on economic forecasts.
– Etla’s research shows that extending working hours has surprisingly significant employment effects on the economy. According to business leaders, the extension of working hours has increased production and facilitated work organization, among other things. The overall benefits are estimated to be high, says Minna Helle, Head of Labor Markets at Technology Industries.
These company-level assessments are revealed in a separate qualitative study that interviewed representatives from 19 companies in the technology, chemical, and forest industries. The study was conducted by Risto Alanko, former Deputy CEO of Technology Industries.
In export industry companies, additional hours have been used to increase production, improve productivity, and facilitate work organization. In global corporations, Finnish units have been better able to compete for investments within the corporation. As the competitiveness of Finnish labor and production has improved, the conditions for employment have also improved.
– At many workplaces, local agreements have evolved, and cooperation has been sought to find effective ways to implement additional hours. Nevertheless, there is still work to be done in changing attitudes, as not all employees and union representatives in all companies have understood the importance of extending working hours, says Minna Etu-Seppälä, Head of Labor Markets at the Chemical Industry.
There is economic significance, for example, in the ability to keep production running on public holidays or in avoiding expensive overtime hours. Quality factors are also not insignificant, as companies have directed additional hours towards employee safety and environmental training.
– Extending working hours has undeniably improved Finland’s competitiveness and created new jobs. This positive trend should not be disrupted, especially now when the government is aiming to improve employment, and the export industry is already preparing for weakening demand, emphasizes Jyrki Hollmén, Head of Labor Markets at the Forest Industry.
Minna Helle, Head of Labor Markets at Technology Industries, phone: +358 50 341 4884
Minna Etu-Seppälä, Head of Labor Markets at the Chemical Industry, phone: +358 40 778 0182
Jyrki Hollmén, Head of Labor Markets at the Forest Industry, phone: +358 40 746 3687
The research report “Working Hours, Employment, and Competitiveness” by the Finnish Institute of Economic Research (Etla) and Risto Alanko’s study “The Impact of the Competitiveness Pact’s Working Hours Solution on Companies in Export Industries” are available at the following websites: www.teknologiateollisuus.fi, www.kemianteollisuus.fi, and www.metsateollisuus.fi.
Emissions trading raises the price of electricity used by the industry until the 2030s, depending on the emission permit scenario, by 30-100% compared to the price without emissions trading. The industry requires a significant amount of energy, so emissions trading imposes additional costs on the industry of approximately €300 million per year. There is still a clear need for compensation for the indirect costs of emissions trading. If the price of emission permits rises by €1/MWh, electricity users pay €0.6/MWh for it.
Finnish industry pays €10-€30/MWh more for its electricity compared to countries without emissions trading. This hampers the industry’s ability to invest in low-carbon technology and maintain competitiveness. At the same time, Finland’s state revenues from emission permit auctions increase, surpassing the compensation for the rise in indirect costs to the industry by approximately €220 million per year.
The Direction is Right, Basic Factors are Crucial in Investment Decisions
Finnish export company leaders consider the question of Finland’s attractiveness as an industrial operating and investment environment to be of paramount importance. If the basics are not in place, investments will be directed outside Finland. Additional investments are needed in innovation activities, which should be targeted towards business-driven R&D projects. The level of cutting-edge research at universities must be raised.
The State’s Primary Role is to Get the Basics Right
Export company leaders are unanimous in their belief that the state’s primary role is to get the basics right. From the perspective of companies, the most important thing is that the state ensures a predictable, stable, and internationally competitive operating environment. Finland must not fall behind key benchmark countries in terms of predictability in the tax system, the functionality of infrastructure, or the stability of the labor market.
According to business leaders, creating an “innovative ecosystem,” or a creative network, is the most important task of the national innovation system. Public support for business R&D activities must be increased, and public financing must be organized in a way that fosters agile and flexible networks between companies of various sizes and universities. Finnish companies participating in global competition emphasize that innovations and new business arise from customer needs, and it is not the state’s role to innovate or choose “winners.”
These factors improve the operating environment:
- Competitive cost level – predictability, fair regulation, and taxation
- Continued reduction of the overall tax rate – industrial operating conditions
- Development of labor peace legislation – political strike rights at Nordic level
- Public sector R&D investments – at the level of benchmark countries and from the perspective of companies
- Building innovation ecosystems – involving large leading companies
- Internationally high-level research and collaboration between universities and companies
- Education – sufficient funding and a workforce with expertise that meets the needs of the labor market
- Attracting international talent to Finland – tax incentives and eliminating needs assessments
- Legislation and bureaucracy that support innovation and digitalization – important legislative projects to completion
- Infrastructure maintenance – greater investment than at present
- The Nordic West Office conducted a study commissioned by Finnish export industries – the Chemical, Forest, and Technology Industries – on the views of business leaders regarding Finland as an industrial operating environment. A total of 30 business leaders from 27 companies were interviewed for the study.
A report on the international comparison of innovation partnership models, titled “Collaboration for Success: International Benchmark of Innovation Partnership Models,” has been published by the Export Associations (Technology Industries, Forest Industry, and Chemical Industry). The study was conducted by Gaia Consulting Oy and VTT in the spring of 2022.
The report consists of a systematic literature review, interviews with representatives of international partnerships, and analyses based on these inputs. Partnership models were examined in benchmark countries such as Sweden, Denmark, Austria, and the Netherlands.
The purpose of the study was to provide insights and a knowledge base for the development of Finnish innovation partnerships and the advocacy work of industrial associations.
Based on the study, three conclusions/recommendations were drawn for the development of partnerships:
- Visibility and accessibility of the innovation system at the national level and clear connections at the international level.
- Development of innovation partnership models based on a common vision, professional coordination, and measurement of success.
- Promotion of commitment and an open attitude towards the diverse value expectations of partnerships.
Read the report here: