Land leasing, land degradation and agricultural productivity in Finland

This study analysed whether the land tenure insecurity problem has led to a decline in long-term land improvements (liming and phosphorus fertilization) under the Common Agricultural Policy (CAP) and Nordic production conditions in European Union (EU) countries such as Finland. The results suggests that under traditional cash lease contracts, which are encouraged by the existing land leasing regulations and agricultural subsidy programs, the land tenure insecurity problem on leased land reduces land improvements that have a long pay-back period. In particular, soil pH was found to be significantly lower on land cultivated under a lease contract compared to land owned by the farmers themselves. The results also indicate that land improvements could not be reversed by land markets, because land owners would otherwise have carried out land improvements even if not farming by themselves. To reveal the causality between land tenure and land improvements, the dynamic optimisation problem was solved by a stochastic dynamic programming routine with known parameters for one-period returns and transition equations. The model parameters represented Finnish soil quality and production conditions. The decision rules were solved for alternative likelihood scenarios over the continuation of the fixed-term lease contract. The results suggest that as the probability of non-renewal of the lease contract increases, farmers quickly reduce investments in irreversible land improvements and, thereafter, yields gradually decline. The simulations highlighted the observed trends of a decline in land improvements on land parcels that are cultivated under lease contracts. Land tenure has resulted in the neglect of land improvement in Finland. This study aimed to analyze whether these challenges could be resolved by a tax policy that encourages land sales. Using Finnish data, real estate tax and a temporal relaxation on the taxation of capital gains showed some potential for the restructuring of land ownership. Potential sellers who could not be revealed by traditional logit models were identified with the latent class approach. Those landowners with an intention to sell even without a policy change were sensitive to temporal relaxation in the taxation of capital gains. In the long term, productivity and especially productivity growth are necessary conditions for the survival of farms and the food industry in Finland. Technical progress was found to drive the increase in productivity. The scale had only a moderate effect and for the whole study period (1976–2006) the effect was close to zero. Total factor productivity (TFP) increased, depending on the model, by 0.6–1.7% per year. The results demonstrated that the increase in productivity was hindered by the policy changes introduced in 1995. It is also evidenced that the increase in land leasing is connected to these policy changes. Land institutions and land tenure questions are essential in agricultural and rural policies on all levels, from local to international. Land ownership and land titles are commonly tied to fundamental political, economic and social questions. A fair resolution calls for innovative and new solutions both on national and international levels. However, this seems to be a problem when considering the application of EU regulations to member states inheriting divergent landownership structures and farming cultures. The contribution of this study is in describing the consequences of fitting EU agricultural policy to Finnish agricultural land tenure conditions and heritage.

The Effect of Obesity on Wages and Employment: The Difference Between Having a High BMI and Being Fat

In this paper, we re-examine the relationship between overweight and labour market success, using indicators of individual body composition along with BMI (Body Mass Index). We use the dataset from Finland in which weight, height, fat mass and waist circumference are not self-reported, but obtained as part of the overall health examination. We find that waist circumference, but not weight or fat mass, has a negative effect on wages for women, whereas all measures of obesity have negative effects on women’s employment probabilities. For men, the only obesity measure that is significant for men’s employment probabilities is fat mass. One interpretation of our findings is that the negative wage effects of overweight on wages run through the discrimination channel, but that the negative effects of overweight on employment have more to do with ill health. All in all, measures of body composition provide a more refined picture about the effects of obesity on wages and employment.

Does Uncertainty Affect Investment and Labor Demand?

This paper analyzes the effect of uncertainty on investment and labor demand for Finnish firms during the time period 1987 – 2000. Utilizing a stock return based measure of uncertainty decomposed into systematic and idiosyncratic components, the results reveal that idiosyncratic uncertainty significantly reduces both investment and labor demand. Idiosyncratic uncertainty seems to influence investment in the current period, whereas the depressing effect on labor demand appears with a one-year lag. The results provide support that the depressing effect of idiosyncratic uncertainty on investment is stronger for small firms in comparison to large firms. Some evidence is reported regarding differential effects of uncertainty on labor demand conditional on firm characteristics. Most importantly, the depressing effect of lagged idiosyncratic uncertainty on labor demand tends to be stronger for diversified firms compared with focused firms.

Essays on Labor Market Frictions, Technological Change and Macroeconomic Fluctuations

The dissertation consists of an introductory chapter and three essays that apply search-matching theory to study the interaction of labor market frictions, technological change and macroeconomic fluctuations. The first essay studies the impact of capital-embodied growth on equilibrium unemployment by extending a vintage capital/search model to incorporate vintage human capital. In addition to the capital obsolescence (or creative destruction) effect that tends to raise unemployment, vintage human capital introduces a skill obsolescence effect of faster growth that has the opposite sign. Faster skill obsolescence reduces the value of unemployment, hence wages and leads to more job creation and less job destruction, unambiguously reducing unemployment. The second essay studies the effect of skill biased technological change on skill mismatch and the allocation of workers and firms in the labor market. By allowing workers to invest in education, we extend a matching model with two-sided heterogeneity to incorporate an endogenous distribution of high and low skill workers. We consider various possibilities for the cost of acquiring skills and show that while unemployment increases in most scenarios, the effect on the distribution of vacancy and worker types varies according to the structure of skill costs. When the model is extended to incorporate endogenous labor market participation, we show that the unemployment rate becomes less informative of the state of the labor market as the participation margin absorbs employment effects. The third essay studies the effects of labor taxes on equilibrium labor market outcomes and macroeconomic dynamics in a New Keynesian model with matching frictions. Three policy instruments are considered: a marginal tax and a tax subsidy to produce tax progression schemes, and a replacement ratio to account for variability in outside options. In equilibrium, the marginal tax rate and replacement ratio dampen economic activity whereas tax subsidies boost the economy. The marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs shocks. We show that increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks. When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses.

Components of productivity growth in Finnish agriculture

The objective was to measure productivity growth and its components in Finnish agriculture, especially in dairy farming. The objective was also to compare different methods and models - both parametric (stochastic frontier analysis) and non-parametric (data envelopment analysis) - in estimating the components of productivity growth and the sensitivity of results with respect to different approaches. The parametric approach was also applied in the investigation of various aspects of heterogeneity. A common feature of the first three of five articles is that they concentrate empirically on technical change, technical efficiency change and the scale effect, mainly on the basis of the decompositions of Malmquist productivity index. The last two articles explore an intermediate route between the Fisher and Malmquist productivity indices and develop a detailed but meaningful decomposition for the Fisher index, including also empirical applications. Distance functions play a central role in the decomposition of Malmquist and Fisher productivity indices. Three panel data sets from 1990s have been applied in the study. The common feature of all data used is that they cover the periods before and after Finnish EU accession. Another common feature is that the analysis mainly concentrates on dairy farms or their roughage production systems. Productivity growth on Finnish dairy farms was relatively slow in the 1990s: approximately one percent per year, independent of the method used. Despite considerable annual variation, productivity growth seems to have accelerated towards the end of the period. There was a slowdown in the mid-1990s at the time of EU accession. No clear immediate effects of EU accession with respect to technical efficiency could be observed. Technical change has been the main contributor to productivity growth on dairy farms. However, average technical efficiency often showed a declining trend, meaning that the deviations from the best practice frontier are increasing over time. This suggests different paths of adjustment at the farm level. However, different methods to some extent provide different results, especially for the sub-components of productivity growth. In most analyses on dairy farms the scale effect on productivity growth was minor. A positive scale effect would be important for improving the competitiveness of Finnish agriculture through increasing farm size. This small effect may also be related to the structure of agriculture and to the allocation of investments to specific groups of farms during the research period. The result may also indicate that the utilization of scale economies faces special constraints in Finnish conditions. However, the analysis of a sample of all types of farms suggested a more considerable scale effect than the analysis on dairy farms.

Modern Societal Impulses and their Nordic Manifestations : On Emancipation and Constraint in Societal Development

The 1980s and the early 1990s have proved to be an important turning point in the history of the Nordic welfare states. After this breaking point, the Nordic social order has been built upon a new foundation. This study shows that the new order is mainly built upon new hierarchies and control mechanisms that have been developed consistently through economic and labour market policy measures. During the post-war period Nordic welfare states to an increasing extent created equality of opportunity and scope for agency among people. Public social services were available for all and the tax-benefit system maintained a level income distribution. During this golden era of Nordic welfare state, the scope for agency was, however, limited by social structures. Public institutions and law tended to categorize people according to their life circumstances ascribing them a predefined role. In the 1980s and 1990s this collectivist social order began to mature and it became subject to political renegotiation. Signs of a new social order in the Nordic countries have included the liberation of the financial markets, the privatizing of public functions and redefining the role of the public sector. It is now possible to reassess the ideological foundations of this new order. As a contrast to widely used political rhetoric, the foundation of the new order has not been the ideas of individual freedom or choice. Instead, the most important aim appears to have been to control and direct people to act in accordance with the rules of the market. The various levels of government and the social security system have been redirected to serve this goal. Instead of being a mechanism for redistributing income, the Nordic social security system has been geared towards creating new hierarchies on the Nordic labour markets. During the past decades, conditions for receiving income support and unemployment benefit have been tightened in all Nordic countries. As a consequence, people have been forced to accept deteriorating terms and conditions on the labour market. Country-specific variations exist, however: in sum Sweden has been most conservative, Denmark most innovative and Finland most radical in reforming labour market policy. The new hierarchies on the labour market have co-incided with slow or non-existent growth of real wages and with a strong growth of the share of capital income. Slow growth of real wages has kept inflation low and thus secured the value of capital. Societal development has thus progressed from equality of opportunity during the age of the welfare states towards a hierarchical social order where the majority of people face increasing constraints and where a fortunate minority enjoys prosperity and security.