Erkki Tuomioja: The Biggest Mistakes of the Economic Policy Are Ahead

ErkkiTranslation of a post published on Erkki Tuomioja blog 

Lengthening work hours without pay and a five percent productivity increase is the core thought of Sipilä‘s conservative cabinet, and it is still very much alive – regardless of the fact that it has not any firm, sustainable grounds. All historical experience shows that in fact shortening the work hours can increase productivity, whereas lengthening it will weaken it per work hour.

The Bank of Finland made a simple study which revealed the following: the claim that increased work hours will lead to increased productivity is, in fact, a mechanical calculation, which will only work if there is demand for products and services created during the additional work hours. In the current climate where production factors – labour, equity, know-how as well as machinery and equipment – are often idle due to lethargic demand and incorrect supply, increasing work hours will not lead to any immediate improvements. In fact, it will likely only lead to allotment of work which, in turn, will increase unemployment.

The thought behind increasing work hours would be less confusing if it would somehow be connected to improving the economy. Now, however, it is being driven by a cabinet which, panicked, makes budget cuts and savings likely weakening the general demand instead of focusing on skills central for any future growth. These actions will also lead to an increase in income difference and inequality and that in turn weakens the demand  which already is, according to the OECD, dragging down economic growth – this means the cabinet’s fiscal policies are actually  fundamental mistakes which will be expensive regarding the country’s economy and productivity.

Categories: Economy, Government

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