IMF warns Finland on work force problems

The International Monetary Fund on June 10 warned Finland on its high unemployment rate, labor taxes and low retirement age, saying it would face difficulties unless more Finns entered the work force.

"Finland needs to increase the rate of employment, and with it, the rate of economic growth," said Robert Feldman, head of an IMF team of economists who carried out the annual assessment of the Finnish economy.

"Without increasing the rate of employment, there will simply be too few workers to support a growing number of pensioners," Feldman warned.

While Finland's high tech companies are in dire need of high-skilled labor, the country has a surplus of low-skilled workers, who were in great demand in the Nordic country's pre-1990 smokestack economy.

Since a recession in the mid-1990s, when the unemployment rate soared to 17 percent, successive Finnish governments have aimed to keep the jobless rate below 10 percent.

According to official statistics, unemployment is currently at 9.5 percent.

But "the unemployment rate is considerably higher than shown in the official statistics," Feldman stated, referring to the high number of Finns currently on labor market programs to combat unemployment.

"Looking at some broader measures of unemployment, it could be even as much as double, on the order of 18 percent. This is certainly a concern," he added.

To give more incentives to companies to hire low-skilled workers, the IMF recommended that Finland cut labor and income taxes, as well as social contributions for the lowest wage-earners for both employee and employer.

To boost the number of workers, Finland should modify its benefits system to encourage the unemployed to seek work, in-crease the retirement age and tighten disability pension regulations, often used for early retirement, the IMF said.

It also warned Finland's government to adhere to its goal of prudent fiscal policies if it is to be able to meet the costs of an ageing population.

"More needs to be done to achieve these goals to ensure Finland has the resources available so it can meet its social welfare objectives," Feldman explained.

"With determined effort, strict public expenditure limits, coupled with tax cuts and other measures to bring down the unemployment rate, it would be possible to trigger a virtuous circle of strong employment creation, stronger economic growth and fiscal savings," he concluded.

The IMF put the economic growth rate at 1 percent for Finland this year, but said it would increase to about 3 percent next year, while inflation was estimated to be around 2 percent for both years.