HELSINKI (BLOOMBERG) - Finland is ranked the world's happiest country, but its population is ageing faster than most and that's putting pressure on the government to get more people into jobs to help pay for those retiring.
Fixing the country's labour market is likely to dominate the agenda when Finns go to the polls on April 14 to elect a new government.
The new administration will need to raise the employment rate to 75 per cent of working-age Finns by 2023, and to 80 per cent after that, according to a civil servants' report published on Monday (Jan 28) that outlines the key challenges ahead.
The rate is now at 72 per cent, meeting a 2015 target set by Prime Minister Juha Sipila which back then was deemed borderline impossible.
That year, just 68 per cent of working-age people had jobs, the country was clawing its way out of a three-year economic slump - its second since the financial crisis - and the mood was grim.
Now with about 140,000 more people at work compared to when Sipila took office, roughly 150,000 more jobs are still needed to safeguard the northernmost euro member's welfare model, the report said.
"The funding of our Nordic welfare model that makes us the happiest country in the world with an incredibly high standard of living relies upon higher employment levels," Nordea Bank Abp's Chief Economist Aki Kangasharju said in an interview.
What Finland needs is that "everyone who is able to work has a job".
Sipila on Sunday said that keeping economic growth at about 2 per cent will generate a gradual increase in employment toward the target.
When Finland's government "is able to raise the employment rate permanently above 75 percent, that actually fully resolves the spending gap," he said in an interview on YLE Radio Suomi.
The government has already pushed through several measures to boost employment, including cutting the cost of labour as well as the introduction of the so-called active model aimed at pushing unemployed job seekers back to work.
A lot of hiring also followed the global economic upswing. Yet that tailwind is about to stop blowing as growth eases in most major economies.
Nordea's Kangasharju says the remedy is more labour market reforms to increase the number of jobs available. Alternatively, Finns should gird for some more belt-tightening.
"If we won't reach higher employment levels, we'll face more austerity with cuts on spending and public sector jobs, leading to smaller tax revenues and higher unemployment spending," Kangasharju said.