Unemployment bill for Finnish municipalities could hit 900 million euros

Finnish municipalities could pay about 900 million euros to Kela in unemployment-related charges this year, 100 million euros more than last year, Yle reports. The costs are rising as unemployment increases and municipalities also lose tax revenue.

The charges apply when municipalities must reimburse Kela for part of unemployment benefits after a person has been unemployed for an extended period. Municipalities paid 103 million euros more in unemployment benefits during January to July than in the same period last year, according to Kela statistics.

The employment services reform that took effect at the beginning of 2025 increased and brought forward municipalities’ financial responsibility. Municipal payments now begin after 100 days of unemployment, compared with 300 days previously.

One unemployed person costs a municipality an average of about 900 euros during the first year of unemployment, according to calculations by Mikko Mehtonen, a development manager at the Association of Finnish Municipalities.

The cost rises sharply when unemployment lasts longer. After more than two years, a municipality pays an average of up to 4,200 euros per unemployed person each year. Long-term unemployed people account for about 80 percent of the charges.

There were 146,000 long-term unemployed people in Finland in July, more than 17,000 more than a year earlier. In total, municipal employment services recorded 361,800 unemployed jobseekers at the end of July, an increase of 22,700 from the previous year.

Unemployment has increased most year on year in the Pirkanmaa region. The situation is worst in Tampere, where the unemployment rate was 17.1 percent in July. Tampere’s unemployment-related charges have doubled since the reform and are forecast to reach 55 million euros this year. Similar developments have occurred in Pori and Turku.

Municipalities are also losing tax revenue because of unemployment. Tampere’s tax revenue forecast for this year has fallen by 13 million euros. Mehtonen estimates that one unemployed person reduces a municipality’s municipal tax revenue by about 2,500 euros per year.

This means unemployment weakens municipalities’ finances in two ways, Mehtonen said.

The Ministry of Employment and the Economy is due to assess the effectiveness of the reform this year. Although the number of open jobs has increased, Finland had 28,240 vacancies at the end of July, there were still substantially fewer vacancies than unemployed jobseekers. In Tampere, there were 23,192 unemployed jobseekers and 1,658 open positions.