HELSINKI: An agreement with labour market organisations on wage cuts and working hour extensions is key to the efforts of the Government of Juha Sipilä to promote economic growth.
The spending cuts laid out by the Government would bolster the economy considerably and reduce the debt ratio by the end of the electoral term, the Bank of Finland estimates. On the other hand, they would curb economic growth and exacerbate the unemployment problem by gnawing away at aggregate demand.
Overall, the impact of the cuts on economic growth will hinge on the ability of the Government to improve the cost competitiveness of businesses, the Bank of Finland gauges. The efforts of the Government to agree on wage cuts and working hour extensions with labour market organisations are key to improving the competitiveness of businesses. The Bank of Finland expects unit labour costs to creep up by almost five per cent by 2019 unless an agreement with labour market organisations is found. Unit labour costs measure the cost of labour per a unit of output and can thus be reduced by cutting wages or improving labour productivity. The agreement would also boost economic growth above the rates projected by the Bank of Finland for 2017—2019 – to up to 2.9 per cent in 2019 – by encouraging private investments and export activities.
