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Home BUSINESSSocial contract negotiations to impact growth, employment
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Fri, 21 Aug, 2015 12:04:39 AM
FTimes – STT Report, Aug 21
 
chief economist of OP Pohjola Reijo Heiskanen. File Photo – Lehtikuva.
The failure of agreeing on the social contract and the realization of additional budget cuts could eat into Finnish economic growth and employment, warned economists.
 
The government intends to move forward with approximately 1.5 billion euros in cuts and tax increases if the social contract does not materialize as hoped.
 
“Cuts always have a dampening effect on the economy as well as a negative impact on growth and employment,” said chief economist of OP Pohjola Reijo Heiskanen.
 
Last week, investigator Juhani Salonius felt out the negotiations to see if they had a solid basis to start.
 
Friction between the parties has been caused by, among other things, the issue of reducing labour costs per unit.
 
The parties met on Thursday but the meeting ended without reaching any negotiation.
 
“We began the talks with constructive spirits, but things are not so easy and simple,” said STTK chairman Antti Palola.
 
After the discussions Wednesday evening, Prime Minister Juha Sipilä estimated the probability of a social contract emerging from the negotiations to be 20 to 30 percent.
 
“Even that may be an optimistic estimate,” said Municipal Employers Labour Market Director Markku Jalonen Thursday morning.
 
STTK chairman Antti Palola. Photo – Lehtikuva.
Any additional budget adjustments would be clearly reflected in economic and employment figures, said the Pellervo Economic Research Institute (PTT). 
 
“If the cuts and tax increases reach 1.5 billion euros, the impact on the GDP is likely to be less than one percent, and employment will fall roughly by the same amount,” estimates PTT economist Janne Huovari.
 
The government had set a goal for the social contract of a reduction in unit labour costs by at least five percent to improve Finland's competitiveness.
 
The Central Organisation of Finnish Trade Unions (SAK) has stated that it is not ready to negotiate with the precondition of percentage targets.
 
The government is prepared to implement substantial income tax relief if the conditions were met in a social contract.
 
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