Immense Change In Finnish Human Resources


In the last three decades, the Finnish human resource management system has changed immensely, both through reforms and "natural" changes, caused by structural transformations in the Finnish society.

This paper aims at describing the human resource management (in the following HRM) system of Finland. To draw a comprehensive picture of the Finnish HRM system, the author does not limit the analysis to the microeconomic perspective of HRM, but mainly concentrates on the macroeconomic matters. Thus, the employment relations system of Finland and its collective bargaining system will be introduced. Finally, the author describes the most important and latest trends in the Finnish HRM system.

Considering that in Finland, duties of employers are marginal in comparison to the taxpayers obligations, the achievement of some top social objectives of the welfare system are mainly in the hands of the labor unions. This is a characteristic feature for Finland that is also traceable in other Scandinavian countries, and leads to a strong power of the trade unions and a high unionization rate (Brewster; Larsen 2004: 142). But compared with other Scandinavian and Northern European countries, Finland has always been even more strike-prone, going together with a different labor-relations culture. Astonishing that this trend has changed in the foregoing years. The number of employees, being unionized is steadily decreasing in Finland. This current issue is surely the most prominent topic of Human Resources in Finland today, as it may have influence on the total Finnish welfare system.

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When it comes to the Scandinavian States in terms of economic and social consideration, the general public opinion would attest these countries the image of being a welfare area with high social security, gender equality and solidarity in wage policy (Vanhala 1995: 31). In the area of Human Resources, Finland goes along with its Northern European neighbors in plenty areas, they differ to the Central European approach to some extend. But also between the Nordic states, one can detect distinctions. Finland, a latecomer of the Nordic welfare states, cannot simply be seen as a uniform area in Scandinavia, its human resource system requires a self-contained examination.

3. The Human Resource- and Employment Relations System in brief

Human Resources can be described as a rather new science. It has both been named "a new era of humane people oriented employment management" and disparaged as "blunt instrument to bully workers" (Keenoy 1990: 375). While some academics only see a difference in the term to traditional personnel management, others agree that human resource management is the function of restructuring and redesigning personnel. Globalization and transformation to large organizations can be named main-drivers for a steadily rising amount of companies implementing human resources management into their micro-environment, their business (Redman; Wilkinson 2006: 7).

From 1980 to 1990, Finnish companies went through a huge technological, social and economical change. Globalization led to an internationalization of Finland's companies. In this context, new labor policies were implemented. Finland's society that has always had a focus on paternalistic values, such as job security and personnel benefits, changed to a system with more attention towards efficiency, also when it comes to the Human Resource system (Vanhala 1995: 35). But firstly, the definition of Human Resources in this chapter must be clarified, as it varies in the international literature. Here, one must distinguish the strategically, micro-view from the company's perspective, and the marco-economic human resources, with focus on labor relations and trade unions. In this chapter, the micro-economic view of Human Resources in Finland will be described; the macro-economical perspective with attention on labor unions follows in the next one.

The Finnish society has gone trough a process of "dualization" that is still continuing (Singleton 1981: 199). Dualization, a term that is often used in Finland, describes the struggle of the Finnish Human Resource- and Employment Relations-System, to satisfy the needs of parties that are often having contradictory aims (Vanhala 1995: 32). From a business perspective, there is especially the conflict of interest between employees that are permanently employed and employees that are only temporarily in a labor relation with a certain company. In other words, the company's need for flexible workforce on the one, and the employee's need for security on the other hand (Vanhala 1995: 34) have to be balanced. Regarding Human Resources in Finland from this context, one can see that between the 1980s and '90s, workforce management went trough a change towards a more strategically approach (Vanhala 1995: 34). During this so called "emerging phase", named by Sinika Vanhala, focus on cost-effectiveness, "increasing line responsibility, and the mentioned flexible use of labor and dualization of labor force found a way to Finnish Human Resources."

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Before the second half of the 1980's, human resource management in Finnish companies was mainly in the responsibility of the company's owner, or the company-responsible manager.

According to a Finnish study by Schnaber and Wagner (Böckerman; Uusitalo 2006: 38), human resource management was basically the execution of legislative and collective agreements, and the necessary activities to progress flow of work (Tasks like appointing workforce, but also caring for a good working-atmosphere) (Vanhala 1995: 35).

This view changed in the mid-1980s. With the new, strategic human resource management approach, companies tried to implement and select their workforce in a way that they could get a competitive advantage out of it. Therefore, since the late 1980s, aim of companies' human resource management in Finland was not only having a „good" HRM, but an effective one in regards to business operations. This development was surely not a Finnish phenomenon, as mainly all European countries started to adopt Strategic Human Resource systems at that time, inspired by the US precursors (Brewester; Harris 1999: 211 ). A specialty in Finland however was and is definitely the occupational composition, with small to very small companies building the mass of businesses (OECD 2010: 45 ). Nevertheless, in 1992, more than half of the organizations had a written strategy for their Human Resources. Due to another empirical study, strategic Human resources in Finland on a divisional level mainly focused on the design of wages and salaries, performance evaluation and incentivizing, as well as assortment of right workforce (Vanhala 1995: 38).

In this context, another Finnish labor phenomenon must be mentioned. The fact that company-leaders are mainly recruited from other work functions in the company differs to European and American businesses. The Finnish employers tend to prefer managers to have a switch in their function, but inside the company, instead of working with managers from the same department, but also instead of recruiting an outsider. (Brewster et al 1999: 56)

4. Development of the Collective Bargaining System

In Finland's recent history, the most important business sector was the forest economy. The wood industry with focus on pulp and paper machinery could achieve big margins in Finland itself and by exporting to foreign countries. Due to its importance, many developments in Finnish human resource management system had its establishment in this area. Many regulations in the personnel policy but also in Finnish industrial relations can be explained by their origins in this sector as well (Vanhala 1995: 4).

Furthermore, there are chemicals, textiles and clothing, as well as the steel businesses, which are additionally important patterns for the Finnish economy. Finally, there is the electronics-industry, with its most prominent company Nokia. According to the Income Distribution survey distributed by Finnish statisticians (IDS), in 1993, 296,000 businesses were settled in Finland, with one half agricultural businesses. In European comparison, Finnish companies tend to be rather small. About 90 percent of Finnish businesses are employing less than six persons. On the contrary, less than one percent of Finnish corporations employ 1,000 persons or more.

When analyzing the Finnish labor relations, it is interesting that the state is involved comparatively strong into companies, as state owned businesses employ about 8 percent of all workforces in Finland. From 1980 to 1991, Finland could improve its GDP in European comparison about five places to the sixth place, according to a study done by the OECD. Finland went trough a period of privatization that also influenced the human resource management behavior. In the Finnish society, the strategic human resource management approaches led to frustration and fear, as the balance between efficiency and big personnel problems could often not be met. As an example, plenty workers were transferred to other units in terms of efficiency, sometimes against their will.

When analyzing the collective bargaining and labor unions in Finland, it is important to understand the employment situation in the country.

In Finland, labor market training has a very high significance. Here, one must distinguish between training with the aim to increase the employability of workers, and further training offered by companies. Local employment offices offer the labor market training. Unemployed persons that are frequently locating these trainings are allowed to get a further training.

Subsidized work exists in Finland as well, in the way of direct job creation and employment subsidies ("OECD: Special Features Finland 2008: 12). In 1988, the Employment Act was passed. It is today seen as one of the most radical applications of labor policy in Finland (OECD 2010: 21). With the Employment Act, central and local governments were enforced to hire long-time and young unemployed persons for half a year. The wages were paid by the labor market policy funds.

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While the effects of labor market training appeared to have a significantly positive influence, the subsidized employment initiatives such as the Employment Act were less successful. The rising awareness for the only moderate success of the 1980's labor reforms led the Finnish government design a new, more comprehensive National Plan for Employment. Launched in 1998, it concentrated on the "functioning of the labor market and preventing exclusion from it" (OECD 2010: 22). But due to the continuing high unemployment rate, created by the recession of the early 90's, effects of these reforms still were not satisfying. In 2002, the labor market was reformed again, with several interesting new ideas. Employers hiring a long-term jobless for example, receive the employee's subsidy for the next two years.

In Finland during the 1980s, around 80 percent of the workforce was unionized. This union density that was even high for a Nordic country, declined to 73 percent in 2004 (Böckerman; Uusitalo 2006: 40). The trade unions are represented in three well-organized national confederations, consisting of the STTK (The Finnish confederation of salaried employees), the AKAVA (confederation for unions of academic professionals in Finland) and the SAK (central organization of Finnish trade unions). Adverse, there are the two less powerful, but also well-organized employer confederations (TT confederation of Finnish industry and employers and PT employers confederation of service Industries in Finland) (Piekkola; Snellman 2005: 63 ). Also explainable with the Finnish non-employment related security system, the coverage of all collective agreements amounts up to 95 percent of the employed labor force (Piekkola; Snellman 2005: 64 ). They cover regulations of minimum wages, working time, workplace conditions and more. Collective labor contracts are also binding for the non-union members in the industries where more than half of the employees are union members (Böckerman; Uusitalo 2006: 41). In Finland, the levels of salaries are settled in the Sectoral Collective Bargaining Acts. Additionally, there is a salary security system that guarantees outstanding salaries, even if the employing company goes bankrupt ("Country profile Finland 2001: 3). According to a research of IDS, union membership structure in Finland differs to other countries. Firstly, women are more likely to belong to unions. Secondly, higher-educated employees are more often unionized than less-educated workers (Visser 1999: 167).

In regards to the fragmentation of employees' opinion towards unions, it stands out that most major, micro and small companies keep up with the Collective Bargaining, while only the smallest companies in Finland seem to boycott the Collective Bargaining Acts. Especially in fields as retail, gastronomy, transportation and building, the Collective Bargaining Acts are generally not accepted by these ultra-small businesses. Due to the SAK, this averseness can be explained with a lack of information and understanding of the Collective Bargaining Acts and their effects on small businesses ("Country profile Finland 2001: 1).

When it comes to Finland's decision-making process of employment relations, one major difference to other countries is the point that decisions are made mainly by the unions, without the parliament (Piekkola; Snellman 2005: 65 ). The system is called a "Ghent system".

In such a "Ghent system", the unions have the responsibility for payments such as unemployment benefits or rental payments, responsibilities that also explain the unions' influence in the certain countries (Böckerman; Uusitalo 2006: 38). The "Ghent system" can even be described as a special unemployment insurance system that is based on voluntary membership of unemployment funds (Piekkola; Snellman 2005: 66 ). Also applied in Sweden, Denmark and Iceland, it explains the high membership rates of labor unions in these countries to a certain extend (Lind 2007: 20).

In the 1980's, Finland had a high unemployment rate on the one hand, but employers struggled in finding adequately educated workforce on the other hand. The already mentioned strike-culture tightened the problems as negotiations, as well as production, often was interrupted. Again, the dualistic situation in Finland can be substantiated, with Finland's workers, having a comparatively high standard of living, and the aligned costs for the state, leading to high inflation rates and an aggravation of the Finnish labor market. The government could hardly find regulations to improve the situation (Butler 2010: webpage). The trend ended in the second half of the 1980's, with a recovery of the Finnish industry.

In the early 1990's, Finland again went through a recession, leading to decreasing labor costs. Although there was as a following strong economic upturn in the second half of the 1990's in Finland, collective agreements took in a major role in limiting the increasing trend of labor costs. These agreements that were mainly decided upon by the labor unions, could increase the competitiveness of the Finnish industries on the European market. Especially on the background of Finland's accession to the European Union 1995, one can say that the labor unions created an excellent potential for a real improvement in employment (OECD, o. J.). Thus, the current developments, through which the unions go, were unexpected. There is an already mentioned decline of labor union-membership that even tends to continue. As of today, union membership rates have declined for more than 10 percentage points. This development may be explained with an increasing neo-liberal ideology in Europe, and occupational changes. Most probably, the "Ghent system" also contributes to this downwards trend (Böckerman; Uusitalo 2006: 36). Recently, this development appears to even accelerate. In the following, the author will analyze how labor unions have developed and if the Ghent-system contributed to this development.

Recent Trends in Employment Relations: The Decline of Finland's Unions

According to a survey that was executed by the IDS in the early 1990's, the number of employees being unionized recovered from the first downwards trend in the second half of the 1980's. But with the year 1993, amounts started to fall conspicuously strong. A reason for this happening was in all likelihood the establishment of a new, independent unemployment insurance fund (Böckerman; Uusitalo, 2006: 36). A support for this thesis is the fact that until 1993, only very few nonunionized employees were members of an unemployment insurance fund, while at the end of the 1990's, this share climbed to ten percent (Lind 2007: 29). These numbers come along with the trade union density. While in the early 1990's more than 80 percent of workers still were union members, in 2003, only 72 percent remained. There seems to be a strong correlation, one could even come to the assumption that this ten percent loss consists of the employees that chose the independent unemployment fund (Piekkola; Snellman 2005: 63 ). Obviously, the motivation for employees to leave unions and enlist at the independent unemployment insurance fund was mainly driven by the costs and the price-design. While the unions charged 0.1-0.6 percent of the employees wages, the fee for the independent unemployment insurance fund was only about 65 Euros maximum per year. Thus, the independent unemployment fund is not only cheaper in most cases; it is most notably more transparent in its cost-structure. This might even amplify the averseness of less-educated, to become or continue being unionized.

In addition to that, one must take the unions' age structures into consideration. According to a study of Petri Böckerman, the majority of union members are born before 1960. Younger workers rather tend not to get unionized (Visser 1999: 179). This is not only a trend in Finland, but in other European countries, the age-structure in unions is more or less equivalent (Brewster et al 2004: 23). Hence, this explains why the Finnish unions have decreased and will continue to decrease as well. Regarding their strong influence in the 1980's in comparison to today and the following years, this may have influence on the whole Finnish society. As of January 2001, the Finnish labor agreement act, as well as the Collective Bargaining Act was reformed. So far, the Collective Bargaining act was obligatory when more than 50 percent of the employees in a certain sector were union-members, which was called "general validity" (Vanhala 1995: 39). With the new law, the foregoing 50 percent rule was not decisive anymore, if the Collective Bargaining acts have otherwise been established. Before January 2001, disputes between employers and employees were dealt with in labor courts. But since the renewal, the Ministry of Social Affairs and Health is the new responsible authority when it comes to collective bargaining. Nonetheless, these commonly compulsory acts will be applied also for both non-unionized employees and unionized employees ("Country profile Finland 2001: 8.).

Hence, the core finding of this paper is the assumption that in the future of Finland, the unions will experience a further decrease of power, when it comes to make labor decisions. Most probably, the parliament, or other organizations will overtake bigger stakes in decision-making and union contracts will no longer be valid for nonunionized employees. If Finnish unions want to work against this trend, they have to become more attractive for the groups that are yet making out the weakest share in union density. Men, young people and less educated need to be directly addressed by the labor unions by arising the awareness that unions are not only giving security in terms of the unemployment fund, but also strengthen their power in labor negotiations. Especially in regards to the finding that the major amount of businesses in Finland is composed of micro-sized businesses, exactly these companies have to be convinced that collective bargaining agreements are representing their position as well, maybe the unions need to find ways to even proactively include them in the design of the collective bargaining acts. Furthermore, the unemployment fund, offered by the unions, has to redesign its price-structure to a more competitive and transparent price design, to fetch back the 10 percent share of dropouts that left for the independent unemployment fund.