Enhancing competitiveness – what's going on in Finland?


Employment and competitiveness have been a hot topic in Finland for some time now (ever since the current Government was elected in May 2015). A lot seemed to be changing for the employers and employees, but what actually changed?

The Government’s objectives are to bring the Finnish economy onto a path of sustainable growth and higher employment. In practice the Government started its work by announcing that working hours will be prolonged, overtime pay will be cut and holiday bonuses will be removed. This instantly became an item of debate, especially on the trade union front, but also politically, since the Government announced that it will make the changes one-sidedly by law if trade unions cannot come to an agreement on these issues.

Naturally suggestions provoked a debate. In my view, this discussion has actually been quite refreshing and long yearned for, since Finnish politics has been quite unanimous (a.k.a. boring!) recently, and the Government's suggestions actually raised an excellent public discussion that was way overdue.

Since the Government changes were first suggested, they have been forgotten or compromised (for instance the cutting of overtime pay seems to have been buried), but some major steps and changes have been taken so far. To keep things brief, this is what is going on:

1: Agreement on Competitiveness

Trade unions have reached an Agreement on Competitiveness (in Finnish "kilpailukykysopimus"). This is a frame agreement by which the current Collective Agreements were prolonged by 12 months. The main changes in the Agreement on Competitiveness are that:

  • The working hours will be prolonged by 24 hours per year, which means an increase of 6 minutes per day or 30 minutes per week starting 1 January 2017.
  • Salaries will not be raised with a general increase.
  • Holiday bonuses in the public sector will be decreased by 30 % (this does not apply to the private sector).
  • If an employer with at least 30 employees makes an employee redundant and the employee in question has worked at least 5 years for the same employer, the employer must offer training to the employee. This training must be worth the employee's one month's salary.

2: Changing the Employment Contracts Act

 The Government has issued a bill to change the main law that applies to employment relationships in Finland, the Employment Contracts Act. At the moment the Finnish parliament is handling the Government bill and deciding whether the law is changed or not. If the Government's suggestion is approved, the new provisions shall most likely step into force 1 January, 2017. The main changes of the Employment Contracts Act would be:

  • The probation period would be prolonged from 4 to 6 months. If an employee goes on sick leave or family leave during the probation period, the period could be prolonged.
  • The employer's rehiring obligation period is shortened from 9 months to 4 months (6 months if the employee has been employed by the same employer for at least 12 years).
  • An employer would no longer need grounds for using a fixed-term employment agreement if the agreement was made with an employee that has been unemployed for a longer period (12 months or more) and the fixed-term would last for a maximum of one year.

So far it is difficult to say if the changes would have a significant impact on the Finnish competitiveness, but one can only hope so. To me it seems as if these changes would actually improve the labour market situation and the employer's position on the practical level.

On the grass root level, at least prolonging the probation period would make it easier for the parties to an employment agreement to decide if they are compatible. At the moment the 4 months of probation period is very short, as it usually takes much longer for a new employee to learn the new job, not to mention that it may take much longer to actually show one's true talent. The situation has also been difficult for both parties if the employee has been sick during the probation period, since the employee does not get an idea of what the job is like, nor does the employer get an idea of whether the employee is right for the job or not.

Also the rehiring obligation of 9 months has been too long. This causes unnecessary burden for the employers, especially in larger companies with a lot of employees. Other departments may not be able to recruit new people unless they undergo a very detailed check list of who has been made redundant from which positions, and when, and whether these people are still listed as job-seekers at the employment office. Shortening the rehiring period offers more flexibility and clarity to both parties.