Bank of Finland Governor predicts continued high unemployment in spite of economic growth

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Erkki Liikanen, the Governor of Finland's central bank, the Bank of Finland, says that production in Finland can no longer be accelerated, and employment improved by boosting demand.
      In Liikanen's view, the Finnish economy has run up against limits of supply: production is running at full capacity, and there is a shortage of people capable of work.
      Speaking at the publication of the bank's quarterly report, Euro & talous ("The euro and the Economy"), Liikanen said on Wednesday that neither large public investments nor massive tax cuts would be appropriate in the current cyclical situation.
     
Liikanen illustrated his views with the Beveridge curve, which indicates the interconnection between available jobs and unemployment.
      The curve shows that 15 years ago Finland's level of structural unemployment was four percent - indicating the proportion of jobless who were virtually impossible to employ.
      "Today's worrisome information is that the level is now eight or nine percent. There are many available jobs, but the unemployment rate remains the same", Liikanen said.
      He called for a serious assessment of the problem of structural unemployment.
      "A situation that is as difficult as this one sets very great demands on labour policy and the availability of labour."
     
Liikanen emphasised that the problem is a serious one for Finnish society in the medium term. "We are in a situation in which industry is searching for more people, while the supply is so rigid that solutions are not being found."
      In addition to the labour issue, Liikanen sees other potential problems for the Finnish economy. He noted that a shortage of land is inhibiting investments in construction, pushing up housing prices.
      "It is pretty strange that in such a developed and sparsely-populated country, the rise in the prices of housing is caused by a shortage of land. Something is going wrong here", Liikanen said, calling for a focus on zoning, and making more land available for construction.
     
In spite of the threats, the Bank of Finland sees the near future in a positive light. In spite of problems with supply, there is no threat of high inflation.
      "This is affected by increased competition and the effects of globalisation. Prices of consumer goods are going down."
      The central bank predicts that GDP will increase by three percent this year, and slightly less next year. The forecast for 2007 is for 2.6% growth. 


Previously in HS International Edition:
  Finnish companies hiring metalworkers from Poland (30.3.2005)

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