Finance Ministry’s Tough Employment Strategy

The Finnish economy recovered at a slower rate than the rest of Europe after the financial crisis. Unemployment remained high and he employment rate remained well below other Nordic countries at around 72%.

Inflexible labour market structures, and a poorly performing export sector all contributed to this relatively weaker performance. Over the last 12 years, three past governments were distracted by a failed major healthcare reform and by a lack of determination and of careful planning to make the needed radical changes.

The present government led by the Social Democrats has said that they want 60 000 people to find jobs and they asked the Ministry of Finance earlier this year to come up with an independent non-political plan to achieve that objective.

This plan was presented the other week and is based on 3 sets of policy measures:

    1. How to keep older workers working, 
    2. How to change unemployment benefits, unemployment services and how to improve work skills, 
    3. How to redefine adult education and training.

The report is based on the results of recent studies on all three parts meaning that politicians will have a hard time refuting the conclusions.

In any event the present government has already shown the world that they can hold their own. The results of government policies regarding the impact of the Corona Virus are impressive. Finland has one of the lowest death rates in the world and the economic impact is much better than most of the EU, and far better than that of Sweden.

For some strange reason Sweden has been cited as a country that has been progressive in handling the virus. Their death rate is 10 times higher than Finland and their economic performance for Q1 and Q2 were 0,1% and -8.6%, while Finland’s Q1 and Q2 figures were -1.9% and -3.2% respectively – both numbers come from the most recent OECD statistics.

Older workers – Too many people over 60 years old have left the labour market compared to Sweden, and the same group is many times more likely to remain unemployed one year later compared younger folk.

The report presents a policy increasing the age when a person may retire by removing many of the exceptions to this retirement age limit. Recent studies from Sweden clearly point out that the removal of such exceptions has increased “the labour force participation among the elderly since the mid-1990s.” Forslund (2019).

This measure is expected to achieve the employment of some 30 000 people.

Unemployment services and benefits – Most workers are entitled to 300 days of unemployment benefits if they have worked for 26 weeks the last 28 months. The problem here according to the report is that a week’s work is set at a minimum of 18 hours a week, so an unemployed person who has worked less than 18 hours receives no benefits. Their proposal is to base unemployment benefits on the wage register (Finland has a national wage register for tax purposes), while at the sawed time giving more benefits to the unemployed who have worked more and less for those who have worked fewer hours. Studies appear to support such policy changes – Kauhanen ym. (2008) states:“Our results show that the tightening of entrance requirements had a positive impact on the job search behaviour of those unemployed job seekers who due to the reform lost their eligibility to unemployment benefits” and “In the age group 25-29-year-olds the likelihood of finding a job in the open labour market increased by 38 per cent in the treatment group compared to the similar job seekers in control group after the reform. Among the high skilled, the treatment group had 29 percent higher likelihood of finding a job compared to control group after the reform”.

A second measure, also supported by recent studies (Mergele & Weber (2020), Cheung et al. (2019), and  Lombardi (2019)), is to make sure that services for getting the unemployed into the labour market are concentrated in one place with the municipalities along with the costs and benefits, rather than with the current responsible bodies that cover larger geographical areas. They are proposing a new control and sanction system is based on the jobseeker’s self-reporting, regular interviews based on this reporting, and reasonable and progressively more severe sanctions. In the same context, personal guidance services will also be strengthened in terms of resourcing. 

This reform is expected to achieve the employment of 25 000 new workers.

Adult education and training – There are many forms of support in Finland for career training and strengthening one’s own skills. Unfortunately, their impact on employment is minor or unclear according to studies. Voluntary study with unemployment benefits is inappropriately targeted: on the other hand, students train as community carers, for whom there is a need in the labor market, while others train for other work away from that profession! 

According to research, Kauhanen (2018) and Kosonen & Järvinen (2019), raising the income limits for study grants would increase student income and increase net income in the public sector. However, this may increase work during studies and result in the negative effect of lengthening the period of study.

The proposal from the ministry is to ensure that training is better targeted, for example by moving to loan-based support. If no credible solution is found to the current weak targeting, adult education support should be abolished and the main benefits of adult learning remain as voluntary study with unemployment benefits and normal study support. 

The intention is that voluntary study will be targeted to support employment and the unemployed who will benefit the most from these studies. This means delimiting the fields of study. 

Working during studies is supported by raising the income limits for study grants. In order to prevent a slowdown in studies, the support monthly credit requirement will be tightened so that the support months are sufficient for completion in the target time. The term of the student loan credit is harmonised with the target period.

This reform is expected to achieve the employment of 5 000 new workers.

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