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Sebnem Kalemli-Ozcan, Pierre-Olivier Gourinchas, Veronika Penciakova, and Nick Sander
We estimate the impact of the COVID-19 crisis on business failures among small and medium size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost-minimization and measure each firm’s liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. We estimate a large increase in the failure rate of SMEs under COVID-19 of nearly 9 percentage points, ab-sent government support. Accommodation & Food Services, Arts, Entertainment & Recreation, Education, and Other Services are among the most affected sectors. The jobs at risk due to COVID-19 related SME business failures represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of Non Performing Loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets and resulting in a 0.75 percentage point decline in the common equity Tier-1 capital ratio. We evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at risk firms can be modest (0.54% of GDP). However, at a similar level of effectiveness, non-targeted subsidies can be substantially more expensive (1.82% of GDP). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery.
Mrs. Jana Bricco, Florian Misch, and Alexandra Solovyeva
This paper examines the economic effects of policies to contain Covid-19, by extracting lessons from Sweden’s experience during the ‘Great Lockdown’. Sweden’s approach was less stringent and based more on social responsibility than legal obligations compared to European peers. First, we provide an account of Sweden’s strategy and the health outcomes. Second, drawing on a range of data sources and empirical findings, our analysis of the first Covid-19 wave indicates that a less stringent strategy can soften the economic impact initially. These benefits could be eroded subsequently, due to potentially higher infection rates and a prolonged pandemic, but in Sweden’s case, the evidence remains mixed in this regard, and it is premature to judge the outcome of Sweden’s containment strategy. In addition, the economic effects of the containment strategy also depend on social behavior, demographics and structural features of the economy, such as the degree of export orientation, reliance on global supply chains, and malleability to remote working.
International Monetary Fund. European Dept.
This 2019 Article IV Consultation highlights that Finland’s economy has performed well over the past three years, however, has slowed in 2019. There are some vulnerabilities in household finances, and productivity growth remains weak, with trend growth also constrained by adverse demographics. A new coalition government targets greater social support and inclusion, higher employment, carbon neutrality by 2035, and a balanced budget by 2023. A key challenge is to balance plans to increase spending with the need to maintain fiscal buffers. The fiscal expansion is expected to provide useful cyclical support in the short run, but offsetting measures will be required to ensure the structural balance reaches the government’s medium-term target. The government aims for a substantial increase in employment, but the effectiveness of the proposed wage subsidies is unclear. Alternatively, incentives from tax and benefit schedules could be improved, especially for younger women, older workers, and those out of the workforce. Risks in the banking system remain low overall, but some types of lending are increasing household vulnerabilities. The recent recommendation to limit the ratio of household debt to income is both sensible and in line with steps taken in many other countries.
International Monetary Fund. European Dept.

2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Finland

International Monetary Fund. European Dept.
Recent growth has been healthy, and the unemployment rate has fallen to its lowest level since 2011. However, some underlying weaknesses remain. The rate in which new jobs are created and the “churn” of workers relocating across jobs has not picked up with the recovery, labor productivity growth remains weak, and the outlook for potential growth is constrained by a shrinking workforce. Household debt has been increasing as the economy has recovered, and some borrowers appear vulnerable to interest rate increases.
Maura Francese and Delphine Prady
This paper discusses the definition and modelling of a universal basic income (UBI). After clarifying the debate about what a UBI is and presenting the arguments in favor and against, an analytical approach for its assessment is proposed. The adoption of a UBI as a policy tool is discussed with regard to the policy objectives (shaped by social preferences) it is designed to achieve. Key design dimensions to be considered include: coverage, generosity of the program, overall progressivity of the policy, and its financing.
International Monetary Fund. European Dept.
This 2018 Article IV Consultation highlights that Norway is in the midst of a healthy recovery from the oil downturn, supported by positive trends in oil prices and a strengthening labor market. In addition, banks remain profitable and well capitalized. However, household debt continues to increase and house prices have resumed their rise, especially in the Oslo area, after a correction during 2017. Mainland growth is projected to increase from 2 percent in 2017 to 2.5 percent in each 2018 and 2019, underpinned by solid consumption, stronger business investment and an export recovery. Petroleum investment will also pick up. As a result, output will likely start to exceed potential in 2019.
Angana Banerji, Mr. Valerio Crispolti, Ms. Era Dabla-Norris, Mr. Romain A Duval, Mr. Christian H Ebeke, Davide Furceri, Mr. Takuji Komatsuzaki, and Mr. Tigran Poghosyan
Product and labor market reforms are needed to lift persistently sluggish growth in advanced economies. But reforms have progressed slowly because of concerns about their distributive and short-term economic effects. Our analysis, based on new empirical and numerical analysis and country case-studies shows that most labor and product market reforms can improve public debt dynamics over the medium-term. This because reforms raise output by boosting employment and/or labor productivity. But the effect of some labor market reforms on budgetary outcomes and fiscal sustainability depends critically on business cycle conditions. Our evidence also suggests that some temporary and well-designed up-front fiscal stimulus can help enhance the economic impact of reforms. In the past, countries have used fiscal incentives in the past to facilitate reforms by alleviating transition and social costs. But strong ownership of reforms was crucial for their successful implementation.
International Monetary Fund. European Dept.
This 2016 Article IV Consultation highlights that the growth in Finland has turned tepidly positive again following a deep recession. GDP increased by 0.2 percent in 2015 driven by stronger private consumption and a rebound in investment. Although net export growth was weak, falling oil prices contributed to the nominal trade balance shifting into surplus, reducing the current account deficit. Better-than-expected fiscal performance brought the deficit back under the 3 percent Stability and Growth Pact limit in 2015. The recovery is likely to continue, but growth is set to remain slow at about 0.9 percent in 2016 and 1.1 percent in 2017. This outlook is subject to downside risks.