15.03.2023 -

Service sectors: Labour needs of the future must be addressed now

Finland’s development into a vibrant and modern service society is slowed down by an increasing shortage of skilled labour. In order to ensure the availability of skilled labour, the next government should tackle these three topics: Improving of low incentives to work, increasing of labour immigration and improving of the quality and quantity of education and training.

The importance of service industries in our economy has grown throughout the 2000s, as Finland has changed towards a modern service society like other developed countries. However, the challenge for the future is keeping up with the development of the comparison countries.

Commerce and private services form the largest employer and generator of economic growth in Finland. They employ half of all employees and create half of Finland’s total gross value added. The majority of new jobs and businesses are also created in the service sector.

“Issues with the availability of labour threaten this development which is important for our society, while theageing population also limits the supply of labour. Problems related to future labour needs must be solved urgently,” the service sector unions state.

Solving the weak incentives to work

Harsh margin taxation weakens incentives to work at all income levels. In case of expert positions, effort has been made to solve this by introducing taxation at source for foreign experts, for example. However, when compared internationally, the work must also be rewarding for those living permanently in Finland.

Low-income earners often face an even worse incentive problem than those in the highest category of the state income tax scale. 

“Even doubling the number of working hours or moving to full-time work is not always profitable, because the slashing of income-based support and benefit systems eats up a lion’s share of the increase in a household’s disposable income,” says Mari Kiviniemi, Managing Director of the Finnish Commerce Federation. 

A steady reduction in margin taxation across all income brackets will encourage the pursuit of better earnings, more challenging careers or more working hours, as additional efforts will leave people with more money. Equal tax reductions can be achieved through combined changes to the basic deduction, the credit for work income and the state income tax scale.

In the service sector, incentive traps often consist of the combined effect of progressive income taxation, housing allowance and adjusted unemployment benefits. 

“In order to dismantle the traps, a new, uniform system, financed through taxes and tax-like contributions, should be designed to replace the separate support systems, including unemployment benefits,” Kiviniemi suggests.

Facilitating immigration that leads to employment

According to the service sector unions, Finland needs labour immigration for both employee positions and the expert and management level. 

“Immigrants who already live in Finland but are not included in labour must be introduced in the labour market. International students who have come to Finland must be attracted to remain in the Finnish working life by, for example, compensating their tuition fees. The income limits for family reunification must also be lowered,” says Kiviniemi.

Immigration stoppers – restrictions on the recognition times of embassies and availability consideration – must be removed to make way for the flow competent labour.

“Work-based permit applications must be processed within a week, and the services for settling in immigrants must be streamlined through digital identification. The interaction congestion with the Digital and Population Data Services Agency must be dismantled and people should be able to get their banking passwords within a week,” says Tuomas Aarto, Managing Director of Service Sector Employers Palta.

Language training for immigrants and employers must also be increased, and employers must be provided with support for managing diversity in work communities, service sector unions say. Municipalities and cities should provide English-language early childhood education and education paths for immigrant employees’ children and services supporting integration and employment for immigrant employees’ spouses.

Education and training as the solution to shortage of competent labour

At the moment, the debate on education policy has a strong focus on the number and importance of graduates of higher education. Although higher education is important, we must focus on the entire education system in order to develop a vibrant Finland.

The service sector unions are of the opinion that the intake points of upper secondary and higher education must be concentrated where there are people, business life and opportunities for employment that correspond to people’s qualifications.

“English-language vocational education and training should be increased in the sectors that need labour. The teaching content of degrees also needs to be reformed so that we can react to the challenges of the digital and green transition in particular. In addition to degrees, we need easily customisable and short-term, working-life-oriented training,” Aarto says.

Vocational training that serves the working life is only possible with the help of close working life cooperation and teaching personnel who are familiar with working life.

“This cooperation should be guided and encouraged through funding. Companies should be encouraged to provide apprenticeship training by improving the training compensation. The administrative burden related to apprenticeship training must also be alleviated,” Aarto adds.  

For further information, please contact:

Mari Kiviniemi, Managing Director, Finnish Commerce Federation, tel. +358 (0)50 511 3189, mari.kiviniemi(at)kauppa.fi

Tuomas Aarto, Managing Director, Service Sector Employers Palta, tel. +358 (0)40 152 0073, tuomas.aarto (at)palta.fi