VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD BEMINE regional economy Juha Honkatukia Senior principal scientist
In this presentation Making sense of the structural change in the Finnish economy Some long-term drivers of structural change On the effects of macro-economic policies Tax hikes and public deficits Regional baselines Research questions 1.11.2016 2
From riches to rags: the Finnish economy since 2008 Value-added share of industry has fallen from 23 per cent in 2008 to 15 per cent in 2015 Manufacturing exports still below 2008 levels Export of services have grown Domestic demand sustained by public spending and de facto Keynesian measures Investment below 2008 levels Why did it happen? A historical simulation points to too high real wages and technological change going against investment As in the 1990s, Russia again a big factor: exports to Russia have collapsed in the past years, partly because of sanctions A historical simulation and decompositions help to communicate the problems to decision-makers 1.11.2016 3
Suomen talouden rakennemuutoksesta 1.11.2016 4
Suomen talouden rakennemuutoksesta Teknologian muutos ja lottamuksen puute pitävät investoinnit jäissä Reaalipalkkojen kehitys pääsyitä viennin supistumiseen 1.11.2016 5
Long-run trends of the Finnish economy Central hypotheses: Both the industry structure and commodity structure will increasingly be dominated by services The occupational structure is also beciming more servicedominated Finland becomes more like other developed economies With prevailing trends: 2030 service exports as important as exports of commodities Aging severely limits labour supply Aging causes growing public expenditure and growth in care sector employment Public sector deficits continue tax hikes and spending cuts inevitable 1.11.2016 6
Kansantalouden pitkän aikavälin kasvunäkymistä (perusskenaario) Palvelujen viennin erkitys säilyy suurena Myös tavaroiden vienti toipuu Palveluja tuotetaan myös teollisuudessa 1.11.2016 7
Regional development Population growth and availability of labour also key drivers of regional development Anticipation of regional growth a two-stage procedure National, industry-specific scenarios Regionalized scenarios Common population forecast Common, national, industry-level scenarios Regional differences stem from structural differences at the outset and in population growth (and policies) 1.11.2016 8
Population growth from 2015, per cent 1.11.2016 9
Growth of labour force from 2015, per cent 1.11.2016 10
Growth of employment from 2015, per cent 1.11.2016 11
Growth of investment from 2015, per cent 1.11.2016 12
Growth of hhold consumption from 2015, per cent 1.11.2016 13
Growth of publ consumption from 2015, per cent 1.11.2016 14
Growth of regional GDP from 2015, per cent 1.11.2016 15
Value added structure in 2030 (old pop. fcast) 1.11.2016 16
Value added structure in 2030 (new pop. fcast) 1.11.2016 17
Value-added shares old vs. new pop. fcast 1.11.2016 18
Labour shares old vs. new pop. fcast 1.11.2016 19
More updates Stat FIN: new 200 X 100 base data, publishable! Regional reform: modelling the regional goverments ; budgets, policy-rules, limitations? Care sector reform? Several projects about to produce starting points for regional modelling e.g. the effect of concentrating public service provision on regional economies, including on migration Regional dialogues: e.g. Lapland Climate and energy strategy: the rise of the bioeconomy? VTT-SYKE-JY: Enegodenous population forecasts Improved data on migration and its mechanismsn 1.11.2016 20
VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD MUUTOS-scenarios
Care reform 1. Health care provision concentrates regionally jobs move people may follow 2. Old-age care grows less than forecast because of new digital opportunities - 6-7 per cent cost savings by 2030 mennessä (about a billion euros!) Migration driven by availability of jobs Policies + Migration affect regional growth Public expenditures on health care reallocated regionally 1.11.2016 22
Menetelmät FINAGE/REFINAGE yleisen tasapainon malli, dynaaminen, alueellinen - Julkisten menojen kehitys - Työvoiman kysyntä - Koulutustarve - Rakennepolitiikka 1.11.20 16 1.11.2016 23 23
Change in regional employment by 2030 1) Net effect -500 1.11.2016 24
Change in regional employment by 2030 1+2) Net effect -4400 1.11.2016 25
Population growth form 2015 Terveydenhoidon työpaikkojen siirtyminen vaikuttaa väestökehitykseen 1.11.2016 26
Aggregate employment compared to baseline Terveydenhoidon työpaikkojen siirtyminen vaikuttaa väestökehitykseen 1.11.2016 27
Population compared to baseline Terveydenhoidon työpaikkojen siirtyminen vaikuttaa väestökehitykseen 1.11.2016 28
GDP compared to baseline Terveydenhoidon työpaikkojen siirtyminen vahvistaa kasvua vain palvelukeskittymisssä Hoivamenojen aleneminen parantaa kasvun edellytyksiä kaikkialla tuottavuus kasvaa 1.11.2016 29
Julkisen sektorin rahoitusasema paranee Kuntien menot kasvavat; kustannuksien jyvittämisestä ei tällä haavaa tietoa Valtiontalous kohenee 1.11.2016 30
Julkisen sektorin rahoitusasema paranee Hoivamenojen aleneminen parantaa kuntatalouden rahoitusasemaa 1.11.2016 31
TECHNOLOGY FOR BUSINESS
VTT Technical Research Centre of Finland Ltd A leading R&D research organisa?on in Nordic countries We provide expert services for our domes?c and interna?onal customers and partners, both in private and public sectors TOP 2 VTT is second most active patenting organisation in Finland (2014) 36% of Finnish innovations include VTT expertise We use 4 million hours of brainpower a year to develop new technological solutions Turnover 277 M (VTT Group 2014) Personnel 2,600 (VTT Group 1.1.2015 ) Unique research and tesdng infrastructure Wide nadonal and internadonal cooperadon network 33 1.11.2016
Macroeconomic policies for growth Supply side policies 1) Societal consensus on competitiveness ; pension reform Pension reform boosts labour-foce participation Pension reform also cuts pension spending Compeitiveness cuts down real wages and contains a truce period 2) Cuts in public spending Many benefits face significant cuts; tax hikes conditioned on the truce 3) Care-sector reform In Finland, most health and care services are publically funded and in many cases also publicly produced (Nordic model) New technology and admin reform is to cut the growth of care spending and reduce the growth of its personnel 1.11.2016 34
My favourite topic Juha Honkatukia, Adjunct Professor, Dr. Sc. (Econ), Lic.Soc. Sc. In VTT since December, 2015 In modelling since early 1990s Past projects have involved Energy and climate policies Anticipation of industry level growth and employmnet Regional development Current project portfolio involves Energy and climate policies Long-run development of the economy (natl & reg) Innovation, technology policy, business cases 1.11.2016 35