Creative destruction, profitability and cost competitiveness: evidence from Finland

Abstract

The study examines the development of profitability and cost competitiveness in Finland’s enterprise sector during the years 1995–2024 from the perspective of the wage labour profitability ratio. The profitability ratio — that is, the ratio of value added to compensation of employees — is a domestic component of cost competitiveness. An analysis based on Statistics Finland’s enterprise data and a macro-micro decomposition shows that creative destruction has steadily strengthened the profitability ratio and labour productivity throughout the entire review period, while variation between sub-periods has arisen from within-firm development. In high-technology sectors, between-firm divergence in profitability and productivity is prominent, while in other sectors the reallocation of labour towards high-profitability firms stands out. Wage restraint may be important in the short term, but over the long term the factors essential to competitiveness are innovation, labour mobility, and the reallocation of resources between firms. (AI translation)

Publication Information

Fornaro, P. & Maliranta, M. (2026), Luova tuho, kannattavuus ja kustannuskilpailukyky: näyttöä Suomesta, Kansantaloudellinen aikakauskirja, 122(3), 256–289.

• ISSN: 0022-8427