Employment Guidelines for 1999

SAK's proposals

Purpose of the Memorandum

The Guidelines for the European Union’s Employment Policy for 1999 were approved during the Vienna Summit which was held in December 1998. According to these guidelines, each Member State must prepare, by June 1999, a National Action Plan for employment. Through this memorandum, SAK is participating in the preparation of this action plan. The memorandum is divided into two parts. In Part A there is an evaluation of the general starting points of the employment policy and in Part B there is an evaluation of Finland’s action policies in relationship to the pillars of the European Union’s employment policy.

A. Starting Points of Employment Policy

The recession which began in Southeast Asia has weakened growth expectations in Europe. In 1999, economic growth, both within the EU-area in general as well as in Finland in particular, will probably remain below three per cent. The effects of this level of economic growth on employment is minor. To strengthen the effects on employment, co-ordination between economic policy and employment policy is needed, both nationally as well as at a European Union level. At the same time, the bases for the action policy must be established for a sufficiently long enough period. Taking into consideration the nature of the change in the structures of both business life and professions, a target-oriented operation requires a 5-10 year examination period.

At the EU-level, discussions concerning both economic policy and employment policy have proved to be problematic. The possibility of the European Central Bank (ECB) implementing a tight monetary policy and a strict interpretation of the so called Stability Pact could further weaken growth and employment. This Finland and Europe can not afford. The resolution which was concluded in December, concerning a reduction in the refinancing interest rate within the Euro area, is an indication of the fact that it is possible to act against this threatening picture. The resolution was justified on the basis of employment and on the basis of maintaining consumers’ confidence.

However, there still exists many unused possibilities and many unresolved problems. Finland’s ability and good experiences during recent years concerning the reconciling of economic policy with employment policy imposes a responsibility for even greater initiativeness, also at the EU-level. During the Vienna Summit, " Europe’s Employment Pact " which is a co-ordination of both pay policy and employment policy, emerged strongly. This is also the basic line of SAK’s employment policy. This basic line must now be included sustainedly within the national action plan.

The guidelines which were set in Luxembourg in November 1997, provide good bases for this work. The Vienna Summit has now confirmed these guidelines with only minor adjustments. In accordance with these guidelines, the employment policy is based on four pillars : employability, entrepreneurship, adaptability and equal opportunities. Activities which are in accordance with these guidelines are needed at every level: working-place, regional, national and at the EU-level.

The trade union movement has criticised the employment guidelines because they do not take a stance at all on economic policy. While on the other hand the economic policy guidelines have been criticised because stability and a tight fiscal policy are continuously being given greater emphasis than growth and employment, even though it is exactly those elements, extra growth and extra employment, which would improve the financial position of the public finances. It is demanded of the Commission, that when it is interpreting deficit criterion, it takes into consideration the economic situation and that it does not, by its stance, endanger the financing of the necessary national investments.

In Europe, the most important long-term aim of employment policy is to increase the rate of employment to the same level as that which exists in the USA and Japan. In comparisons, which the Commission has concluded, it has emerged that the greatest possibilities for improving the employment situation lie in the services sector, both private as well as public. When examining the different age groups, " under-employment " manifests itself in the groups which are under 25 and over 55. Even though comparisons are problematic, services and the above mentioned age groups must be included within the sphere of a special examination also when preparing the national action plan. (See appendix tables and the comments).

In 1990, Finland’s rate of employment was as high as 74 per cent but, by 1997, the rate of employment had fallen to 63 per cent – despite five years of sustained growth. Therefore, during the period 1990-1997, the rate of employment has decreased on average 11 percentage points. However, in the age group under 30, the decrease is about 16 percentage points. In the age group 25 – 29, the decrease in the rate of employment has mainly expressed itself in an increase in the rate of unemployment. However, for the under 25-year olds, education has kept the rate of unemployment lower. In the age group 55 – 59, the decrease in the rate of unemployment has also expressed itself in an increase in the rate of unemployment. Correspondingly, amongst the group 60 – 64 year olds, the majority have been transferred to pension. (See appendix tables).

It has emerged from the Commission’s studies, that the USA’s high rate of employment is based on low labour productivity. It is however possible to predict that the difference in productivity between Europe and the USA will be reduced, when those services in which there is lower productivity will in the near future increase in Europe. However, one must take into consideration, that the long-term employment strategy can not be based on low productivity. According to the recent evaluation published by the Finnish Economic Council, the next difficult phase for Finland’s economy will be during the period 2005 – 2010, when the so called large age groups begin to transfer themself away from working life. The resulting increase in costs, can only be covered through a clear increase in the present levels of productivity.

In SAK’s resolution " Towards Full Employment " (November 1998), extensive tri-partite co-operation for improving the employment situation, was set as the main target. Increasing the rate of employment to 70% would mean the creation of about 200,000 new jobs. As a result the rate of unemployment could, by the end of the year 2002, be 5 – 7 %. The target is ambitious but attainable. The target conforms with the EU’s employment policy. This target can only be reached by strengthening the social development policy, which is based on agreement and which includes confidence, internal integrity and equal opportunities.

B. Policy per Pillar

The EU’s Employment policy is based on four pillars, which comprise in total 22 guidelines. In the following, each pillar will be divided into its own separate action lines, which will refer to one or many guidelines (in brackets). These action lines have been evaluated as follows :

• the main message of SAK on each action lines have been written in italics,
• the arguments put forward for justifying the proposed action policies have been concisely written, and
• separate SAK propositions have been listed with dashes.

1. Employability

The main target of the European Union’s employment policy is, to increase the rate of employment to an average figure of 65 percent by the year 2002. Finland’s rate of employment has already risen to 64 percent and the target has been set to achieve a rate of 70 percent by the year 2002. The target is in no way unreasonable. Before the recession, the rate of employment was on that level and it is possible to attain this level again. At the same time, Finland could become a so called " bench-marking country ", to which other countries’ activities could be compared. A high rate of employment is also a prerequisite for maintaining the structures of a welfare society. Finland is the only Scandinavian country in which the rate of employment is clearly below 70 percent of the working population.

The reform of the European Social Fund (ESF) must support employability. The effects which promote employment must be taken as the main evaluation criterion for the structural fund’s programmes and projects.

Targeted measures (Guidelines 1- 4 and 9)

The prerequisite for reducing the high level of long-term unemployment is, that the long-term unemployed and those who are under the threat of social exclusion, should still be considered as the main target group of ESF – funded projects

In spite of the clear improve in the employment situation, long-term unemployment has continued to increase. In the short-term, it is difficult to find methods with which it is possible to employ the multi-problematic, long-term unemployed in open labour markets. In the long-term, the best way to prevent long-term unemployment is through the purposeful development of the working-place, so that the maintaining of workability and learning at work becomes an integral part of the working-place’s everyday operations. For the protection of those who have been a longer period in working-life and for the protection of those who have worked for a long period in one working-place, a more effective education obligation which supplements the duty imposed by the Article 37a of the Contracts of Employment Act, must be prescribed.

Only a couple of percent of the older long-term unemployed can be employed in open labour markets. The age threshold must be decreased by changing the determining regulations of pension liability so that it is possible to transfer to a model of shared liability, in which the last employer pays, in respect of either disability pension or unemployment pension, only that part of the pension which has been accumulated during that particular employment relationship.

One main aspect to consider when reducing long-term unemployment is, how the unemployed persons are treated. The prerequisite for dealing with unemployed people well, is that concrete alternatives for each unemployed person are found and that the unemployed person and the job centre official, systematically go through the alternatives, in the way in which they have agreed, in the job-search plan.

The conclusion and implementation of a job-search plan is part of the personal service work, which is based on expertise and motivation and which can not be replaced by machinery. Therefore the present challenges can not be overcome without increasing the personal resources of the Labour Administration.

The prerequisite for making policies more "active" is that, in activities which are financed through the unemployment insurance, there must be emphasis on education and rehabilitation. The third phase of the education guarantees i.e. employees’ right to self-motivated vocational education must be expedited. Long-term unemployment must be prevented by developing employment-and working-time models which are suitable for older people and by developing alternatives within the pension policy (e.g. part-time work).

• The utilising of the long-term unemployed as job-alternation replacers must be promoted with the help of employment subsidies.
• The possibility must be created for the long-term unemployed, to study, if they want, for their own sector’s examinations.
• Those older people, who have been unemployed for a very long time, who have had long working careers and who have partially lost their workability, must have the possibility to retire.
• Immigrants need specific programs for integration, especially in the capital region.

From school to work and partnership ( guidelines 5-8)

The implementing of life long learning must be taken as the starting point for the development of both the education system as well as the education activities.

Young people’s primary channel to working life is a fixed form of vocational education, in which the general task of upbringing, which has already begun in elementary school, will continue. This upbringing must secure both the sufficient vocational know-how, which is needed in working-life, as well as provide a base for returning to the sphere of further education, which will occur during a later phase of one’s life.

Utilising methods which are close to working life, must make it easier to employ young people after they have finished their education. The quantitative directing of education must be able to, in spite of the economic outlook, open up education places in those sectors which are growing and in those jobs, in which it is possible to anticipate that a shortage of skilled labour will be created.

The extension of learning at work and the so called 2 + 1 model ( 2 years basic education + 1 year working place education), which is based on co-operation between school type and working place education, must be made into a European Social Fund supported project, in which working place education is combined together with basic vocational education. Personnel who have received the appropriate education are needed to guide work place education.

• To support the employment of young people and the acquisition of working experience, the so called master craftsman-apprentice model, in which it is possible if necessary to utilise part-time pension arrangements, must be created.
• In workplace education which is aimed at recruiting young people, the providing of a vocational degree after the period of education, must be made a condition, in order to obtain public subsidies.

2. Entrepreneurship

The general preconditions for entrepreneurship are, the predictability of both economic development and economic policy, stability of social conditions, the functioning of technological information and other infrastructures as well as an extensive and high level of know-how. Functioning institutions and confidence in the dependability of agreements are indications of an efficient economy and strong civil society. These elements create a base for sustained business operations.

Developing entrepreneurship (guidelines 10 – 11)

The main task of subsidies for small and medium size enterprises is to reduce those costs which are sustained in order to get to the market and to facilitate the starting of operations.

A problem for growth intensive small and medium sized companies is in particular the lack of both security and supply of risk capital. The new company (Finnvera) which has been established to handle the State’s special financing, must co-ordinate the financing of both new companies as well as companies which are in a growth development situation and which are suffering from a lack of security. The State’s capital investment operations must be directed also towards the financing of companies which are starting up. Public subsidies require that a careful preliminary examination and follow-up, of both production and company projects, be carried out.

Competition which has occurred in connection with contract work, sub-contracting and the purchase of services has been associated with unhealthy features, e.g. the weakening of the benefits and rights of employees. Through speculating with company structures and by reducing the size of companies, employers have attempted to avoid both the duties imposed by labour laws and employer’s payments. Many temporary employment agencies have also attempted to achieve the same.

A law must be enacted, concerning the procedures of competition for public services, which secures the benefits of both employees as well as society as a whole. At the same time, the equivalent procedures must also be introduced into private sector competition. Speculation which weakens the benefits and rights of the personnel when changes in the company structures occur, must be prevented. When companies are networking and/or splitting up into smaller units, employer’s responsibilities must then be redistributed.

In Finland, over FIM 20 billion a year is lost to the grey economy. The grey economy strongly distorts competition between companies. To eradicate the grey economy, one must act effectively, not only in Finland but also in Europe as a whole, by strengthening international co-operation to prevent economic crimes and the grey economy. The implementation of the action plan for the years 1999 – 2001, which the government approved, requires the securing of fiscal financing.

• The liability of the procurer of the work must be implemented in contract work, sub-contracting and hired labour.
• The general binding effect of collective bargaining agreements must be strengthened. A sector’s most representative collective bargaining agreement must be the one that is considered to be generally binding.
• The operating possibilities of shop stewards must be secured in the different structural changes which occur in working life. The shop steward system must be improved to complement the contractual system.

Job creation (guidelines 12-13)

The requirements of the service sector and in particular, consumer services, must be taken into special consideration.

In the determination of prices for labour intensive services, the significance of labour costs is substantial. In low paid service sectors, over half of the labour costs goes to taxes and other payments. By changing the structure of taxation, it is possible to increase the demand of labour intensive consumer services. The best employment effects will be achieved, when a reduction in taxation on labour is directed towards low paid employees. In addition, by reducing the value added tax base of labour intensive consumer services, it is possible to promote the demand and production of these services.

Finland has considerable possibilities for increasing the export of services, especially those services which are connected to high technology. The development of these company services requires investment in know-how, research and development operations, the networking of companies and internationalisation. The possibilities for the starting-up of a new company, which supports this target, utilising the help of both public subsidies as well as financing from the European Social Fund, must be clarified.

Taxation (guidelines 14 – 15)

The taxation on labour must be reduced by increasing other taxes. To achieve the best employment effects, the reduction of the taxation on labour must in particular be directed towards low and average paid employees.

The difference in the level between earned income taxation and capital (income) taxation must be reduced, so that the temptation to change from earned income to capital income is reduced. This is why

• capital income tax must be adjusted by increasing both the capital income taxation base and the corporate taxation base (from 28 % to 33 %),
• a small reserves transfer tax (e.g. 0.1%) should be included in stock market trading, to regulate stock market speculation,
• the taxation on income from dividends should be tightened by granting only partially "avoir fiscal",
• real estate tax must be extended to include also agricultural and forestry land and its minimum and maximum limits should be increased, and
• costs which are caused by working, must be taken into consideration in taxation, much more than they are nowadays (e.g. work-related expenses allowance and travelling to work allowance), to facilitate the narrowing of the income trap.

For employment reasons, the system of scaling and other alternatives which are nowadays employed concerning employers’ social insurance contributions, must be clarified. In particular, employers’ social security contribution scales and possibly also unemployment insurance contribution scales, which are based on pay levels, should be clarified. In this clarification work, the functioning of the current practise and the different alternatives as well as their effects on the content of social insurance must be evaluated e.g. according to the following viewpoints:

• Employers’ unemployment insurance contribution scales, which are based on the size of the company, leads to attempts to artificially avoid obligations imposed, through different arrangements in company size. The target therefore must be to treat companies neutrally.
• General social security but not income security, is financed through employer’s social security contributions (state pension contributions and partially by sickness insurance contributions). That is why it is possible that the payments could be financed through some arrangement other than that based on wages/salaries.

In the clarification work however, it must be remembered, that the changes which are possibly presented, must not reduce the financing base of the benefits or distort the competition situation.

3. Adaptability

The main principle must be, that when there is permanent work on offer, it must be carried out by permanent personnel. If the employer wants that the work is carried out by people other than permanent employees, then this must be jointly agreed. Responsibility for labour force use practises requires workplace level co-operation based on jointly agreed principles. Actual negotiation- and influencing possibilities when negotiating about principles concerning labour force use as well as sufficient rights to obtain information must be ensured for shop stewards.

New organisation of work (guidelines 16 – 17)

Companies have a responsibility to develop their personnel. Co-operation methods for the preparation of changes, at workplace level, must be intensified.

In the EU Commission’s Green Paper A New Organisation of Work an attempt is made to obtain a balance between flexibility and security so that the new organisation of work is possible. This balance is considered to be a prerequisite for both the new organisation of work and productive operations. According to SAK’s anticipation project, the hoped for balance does not seem to have been implemented. Personnel’s development activities are still modest and the preparation for changes is weak. [ Future at the Work Place, see: www.sak.fi]. This state of affairs must change. The increasing of the use of personnel-and education plans and the improving of their contents through joint preparation must be established as a general aim.

In the labour market settlements, the working groups " the developing of vocational know-how " and " recommendations for promoting activities which maintain workability particularly in small and medium size enterprises ", which the central organisations have established, are dealing with questions which are connected to working life's changing development adaptability. In the first mentioned group, the most important issues are employees’ rights to education, co-operation at the workplace in education issues and changes in production. The working groups will present their findings before the end of 1999.

The great challenge for Finnish society is to strengthen both employees’ know-how and the sustained use of human resources. Working life’s vocational education must be increased so that new know-how is created and vocational mobility is secured. The development of know-how, the versatility of the personnel and an increase in the general level of education provides the best security in changing circumstances.

• In the future, education must be a part of an employees’ rights, which are connected to the employment relationship, to maintain and develop own professional skills. Employers must take a greater responsibility concerning the organising and financing of personnel education.
• Various methods to change the shortening working time, to be able to participate in education and to develop own professional skills, must be consciously created as a tempting alternative.
• The possibility to have leave from work to pursue studies is, for an individual employee, a necessary prerequisite for securing own professional development, in a way which increases professional flexibility and the possibility of remaining at work. That is why the third phase of the education guarantee, i.e. employees’ right to self-motivated education, must be implemented during the year 2000.

Adaptability of Companies (guideline 18)

Personnel’s education and development activities must be extensive. Education contributions themselves do not guarantee the functioning of the workplace.

There exists plenty of companies, in which the comprehensive development of the workplace has begun. These companies have also introduced personnel accounts, which include the surveying of the personnel’s strengths and e.g. the educational needs, an action plan and a follow-up. This operation must be enlarged. According to the co-operation procedures, a personnel-and education plan must be completed in the workplaces so that a new organisation of work and production can be achieved. All public subsidies (including structural fund subsidies) used for a company’s internal education must only be granted for education which has been handled in accordance with the co-operation procedures.

• The development of the workplace, must also be included as an integral part of the entrepreneurs’ education.
• Adult student’s guidance, advice as well as information services, must be developed as a European Social Fund project. By utilising the already existing institutions (libraries, civic colleges and workers’ academies etc.), a comprehensive advice system can be created, which is able to motivate and support adults who are planning to study.
• An extensive education project, which increases the basic educational level of the adult population, must be implemented under the auspices of a European Social Fund project. Through the utilisation of different study formats, the possibility will be opened up, for all those who want and for all those who do not have a basic vocational degree, to participate in own sector’s vocational degree course. The functioning of the vocational degree system must be improved by securing the resources it needs.

4. Equal Opportunities

Men and Women (guidelines 19-20)

Men and women must have equal opportunities to participate in working-life

In Finland, the rate of unemployment for women has been traditionally lower than the rate for men’s. However, as a result of the recession in the 1990’s, this order has changed. In Finland the rate of employment for women is still clearly higher than the average in the European Union.

The service infrastructures, which provide the possibility for women to participate in working life, are already existing. The care services offer employment possibilities and provide the opportunities for women to be gainfully employed outside the home. The maintaining and development of these services is also necessary in the future. In particular, the fast growth in the number of older people, has increased the need for care work.

Work and Family Life (guidelines 21 - 22)

The reconciling of work and family life requires that their exists a smooth running service sector.

Families also have various possibilities for organising the care of small children. The equal use of these possibilities must be now be given more emphasis. The possibility of part day parental leave for both parents must be strengthened. In this way, periods of absence from work by parents, which may be caused by a child, are not so long they could form an obstacle for both the maintaining of professional skills or for possible career advancement which are directed and which are programmatic are also needed for immigrants to successfully adapt to the society and labour market of the country in which they are now living.

Regional- and Structural Policy

The relationship of regional policy and structural policy to the guidelines must be separately outlined nationally. For the present it has not be possible to have them included in the EU’s guidelines.

The training centre programme, the town programme as well as the countryside programme have been implemented in both the regional policy and the structural policy. These programmes are improving the prerequisites for a multi-farious, innovative business operation and are promoting growth by increasing at the same time, interaction between regional and national development, in such a way, that the developing activities at different levels are strengthening each other.

From Finland’s point of view, it is important that the upcoming reform of the European Union’s Structural Fund, takes into consideration, in an equitable way, but at the same time maintaining the best interests of the European Union as a whole, Finland’s special circumstances, which are characterised by its northern situation, a cold climate, a sparse population and long distances.

It is also important from Finland’s point of view, to ensure that the financing of the structural fund can in the future be used partially also to level out the asymmetric business cycle development. The social partners’ equal participation in the preparation, implementation and evaluation of the regional and structural policy programmes must be secured both on an administration level as well as on a company level.

Appendix

Employment according to sector, as a % of the population aged 15-64 in 1997

Source: Rate of Employment Report. EU Commission

Comments:

• Finland’s rate of employment is the 7th best amongst EU-Member States, however when adjusted to full-time employment it is the 5th best. Ahead are Denmark, Austria, Portugal and Sweden.

• In Great Britain, the difference, between the rate of employment and the rate of employment which is adjusted to full-time employment is considerable. The rate of employment is 71 per cent, but when it is adjusted to full-time employment it is 60 per cent. The difference is due to the significant amount of part-time employment.
• However, international comparisons must be taken with great reservations. For example, the USA’s labour force distribution does not correspond with Finnish applied statistics. Researchers here emphasise that missing from the statistics are e.g. almost 6 million people, who are either homeless or criminals. There are also about 14 million people in reserve who only occasionally participate in working life, which together with the above mentioned group, decisively changes the rate of employment as well as the labour force share in the different sectors of production.
• The category "Communal Services" is unclear. It presumably includes work in the third sector, where the number of hours worked is often very few and mostly without pay. In Finland all of the public services are included in the public administration services and up to now, the amount of other activities remains unclear.

Finland’s Population aged 15-64 according to activity in 1997

Changes in Activities of population during period 1990-97, % points

Source : Labour Force Survey. Statistics Finland