Prime Minister Paavo Lipponen at the EU/OECD Conference on Jobs, Finlandia Hall, Helsinki January 27, 2000

Ladies and gentlemen

The Conference is part of the ongoing search for a suitable mix of employment-oriented policies that will make work pay and ensure that active labour market policies are more effective.

We all recognize that labour market outcomes are highly dependent on macroeconomic conditions and the ways in which these interact with structural forces. But whether we are dealing with the rules of working life in individual companies or the labour market mechanism as a whole, a balance should be sought between competition and cooperation.

I recognize the need to reform the welfare state and make it more competitive in terms of its capacity to generate jobs. There is no single formula for this.

My Government's main objective is to increase employment by mainstreaming stable and strong economic growth. The Government also recognizes the need for a well-functioning labour market where the worker's fundamental rights are honoured and respected.

Finland experienced a deep economic recession in the early '90s. How could an industrial country pass in a mere four years from full employment at the end of the '80s to a catastrophic plunge into joblessness?

Be that as it may, it is a fact that in the early years of the '90s overall output fell around 10 per cent and unemployment rose five-fold. No similar situation has been experienced in any other industrial country in recent times. The average unemployment rate peaked in 1994 at over 16,5 per cent, when we had a total workforce about a fifth smaller than at the start of the decade. The recession was triggered by a severe contraction in demand in Western capital markets combined with the simultaneous total collapse of exports to the former Soviet Union. Interest rates were considerably higher than the average European rates and Finnish businesses were plunged into a financing crisis. The situation on the labour market was very tense. To add to all this, Finland was about to become a member of the EU, and would thus be subjecting itself to the full force of competition on the internal market.

Retrospectively, we can see that our economy adjusted well to the competitive pressures of the internal market. EU membership has been beneficial for Finland. Once it got started, Finland went ahead at a great pace amid European integration in the '90s. We also decided to join the euro area immediately it became established. Meeting the criteria proved easier than expected, and we joined EMU in stronger economic circumstances than we joined the EU.

The main means adopted to overcome unemployment have been to boost economic growth and diversify the production structure using business policy instruments. Considerable additional funds have also been devoted to research and development. By last year research expenditure had risen to around 3 per cent of GDP, from a 1996 level of around 2,5 per cent. Finland has thus joined the leading economies in terms of investment in R&D. A determined structural policy has successfully created the preconditions for new industries based on high levels of know-how and skill, and for the development of SMEs. Finland has now become a net exporter of high technology.

In addition, changes have been needed to improve the workings of the labour market, intensify our active labour market policy and lighten the taxation on work. We were already familiar with the Jobs Strategy published by the OECD in 1994, the EU White Paper on Growth and Employment of the same year, and the recommendations of the Finnish President's special expert working group on ways to reduce unemployment to 200,000. That, too, dated from 1994.

A major role was played in the Government's employment policies by the two-year collective agreements concluded in 1995 and 1997. These guaranteed stable cost trends and ensured a steady increase in demand. The improved job situation led to an 18 per cent increase in household purchasing power between 1996 and 1999.

Employment has risen because of the rapid economic growth. In the latter half of the '90s, output increased an average of some 4,5 per cent a year, for the first time in our economic history. At the same time, unemployment has fallen by 6? percentage points. If I'm not mistaken, this represents the second best achievement in a corresponding period in the entire history of the OECD. The number of jobs has risen by over 10 per cent. In 1999 Finland's unemployment rate was around the EU average, at 10.2 per cent. This year, it is expected to be about one percentage point lower, or 9.2 per cent.

Firm political commitment and far-sighted policies are needed if we are to achieve full employment. It is the prime objective of the Finnish Government's economic policy to bring employment up to the 70 per cent target set in the EU's Employment Guidelines. Last year we already reached 66 per cent.

We have set the aim of full employment. In defining full employment we must take into account both the rate of unemployment and the rate of employment.

The OECD's latest publication on this issue is apparently the McCracken report from 1977: Towards Full Employment and Price Stability. The ILO work conference in 1996 approved the report Employment Policies in the Global Context, which also made full employment the main target of economic, employment and social policy.

To achieve full employment we must get to grips with the hard core of structural unemployment. There is no clear definition of structural unemployment, and the OECD could make a valuable contribution to creating such a definition.

Traditionally, structural unemployment is counted as including workers who find themselves out of work because of poor matching between labour supply and demand. Thus they are unable to find suitable work in their own professional field or their normal working area because there are simply not enough jobs.

Today, another component in structural unemployment comprises people who find it difficult to get into the labour market on their own. The problem is then not primarily a shortage of jobs, but usually some personal reason. It could be a decline in working capacity, or something as ordinary as ageing.

With the spread of IT-intensive production and jobs, the risk of marginalization because of age has grown. There seems to be a general belief that 'old buffers' are incapable of learning new IT skills. Instead, firms often recruit bright young computer nerds. Naturally, the employer wants the best person for the job.

But this prevalent view that an old dog can't learn new tricks is not written on tablets of stone. It should and can be changed. Finland has launched a National Programme on Ageing Employees aimed at improving the labour market standing of older people at work. There is an exhibition on the programme at this Conference which is well worth visiting.

In the second half of the '90s, employment increased most in technological fields and in jobs calling for know-how and vocational skills. These jobs pay quite a good salary. It has been less easy to increase employment in low-pay sectors requiring little skill. This is another source of structural unemployment. During the '90s, jobs in low-pay fields became increasingly what are called 'atypical' employment relationships. Today, over half of all new job contracts signed during the year are atypical. This is about 10 percentage points more than in the '80s.

It is often claimed that strict rules on minimum pay prevent the creation of low-paid jobs. In some respects, this argument is true, of course. But the key reason is probably that technology has reduced the need for human labour in the fields in question.

The problem with low-paid jobs, admittedly, is that they only offer a meagre living. It is important for human dignity that work yields an adequate reward. As support for such low-grade jobs, the 'Making Work Pay' approaches that this Conference, too, will be discussing should be used to improve the earnings potential that work can offer. I look forward greatly to hearing the policy conclusions formulated by the Conference on this subject.

Faster economic growth has little impact on structural unemployment, as the labour market operates selectively. That is why we need specially targeted action and active labour market policies. It could well be hard to find any universal solutions, though, and measures should ideally be tailored to meet individual needs, rather than programme-driven macroeconomic projects. The causes of structural unemployment lie deep and usually call for long-term action aimed, for instance, at maintaining working capacities and raising professional skills.

Finland has responded to unemployment following the principles of the Nordic welfare model. The essential element here is a broadly comprehensive social security net. No-one is abandoned because of unemployment or poverty. Ultimately, society guarantees a basic livelihood if a person's own resources are inadequate.

The mass unemployment at the beginning of the '90s put this model to the test, because thecost burden from high unemployment was a heavy one. A total of some 300 billion Finnish marks was spent on unemployment security and labour market policy measures during the last decade; today, that corresponds to total private consumer spending over about one year. Both the public sector and the social partners helped to finance this massive operation.

Ladies and gentlemen,

I believe that the time has come to radically reduce structural unemployment. This can only succeed if we all work together and openly offer our own experiences, both for good and for bad, for joint discussion and assessment.

I wish this Conference well, and look forward to receiving its report in due course.