Economist says Finland has tackled unemployment the wrong way

Finland has spent years relying on ineffective policies to tackle unemployment, economist Elina Pylkkänen told Yle. Since the beginning of October, she has been chief economist at the trade union OAJ, after serving as an undersecretary at the Ministry of Economic Affairs and Employment.

Finland’s unemployment rate is currently about 10 per cent, and Pylkkänen estimates that 80 per cent of unemployment is structural and long-term. She also points to a lower labour-market participation rate than in other Nordic countries. Pylkkänen argues that repeated pressure on unemployed people has not solved the problem: if punitive incentives worked, she says, the country would not be facing its current unemployment levels.

She believes Finland should learn from Denmark’s flexicurity model, which combines weaker protection against dismissal with higher unemployment benefits and a more active employment service. The aim is to engage with people who lose their jobs quickly, helping them find work, study or take part in job training before unemployment becomes prolonged.

According to Pylkkänen, Finland has adopted mainly the changes sought by employers: dismissals have been made easier, while unemployment benefits have not improved. Benefits have not kept pace with rising prices, she writes, reducing the real incomes of the lowest-income tenth of the population by nearly 10 per cent since 2022. Earnings-related benefits have also been cut, and the 300-euro monthly earnings disregard was abolished.

Pylkkänen would restore the earnings disregard, which allows benefit recipients to earn a set amount without their benefits being reduced. She says social security should be seen not only as a safety net but also as a way to help workers move to more productive companies.

She also criticises the way employment services operate in Finland. Municipalities are required to handle job placement through standardised procedures, and employment regions lack real-time data on jobseekers and companies. Pylkkänen says existing information, including the income register and Kela benefit data, could be used to automate the coordination of wages and benefits and reduce paperwork for jobseekers, businesses and officials.

The Ministry of Economic Affairs and Employment estimated last year that adopting a flexicurity model could increase employment in Finland by 77,000 people by 2040. Pylkkänen also says unemployment policy must be considered alongside education, arguing that educational institutions need to provide skills that make it worthwhile for companies to operate.