Essays in Economics of Unemployment

This dissertation looks at four aspects of unemployment policy in Finland and uses population-level register data to analyse these policies.

The first essay studies Finland’s furlough system, which allows employers to temporarily stop paying wages while retaining the employment contract. This system was used heavily during the financial crisis in 2009 and the COVID-19 pandemic, when most new unemployment claims came from people on furlough. Most furloughs last only a short time, and people usually return to their old jobs. However, a small group of workers—only a few per cent of the working-age population—received more than half of all furlough benefits over the past twenty years, often because they were furloughed repeatedly. Furloughs appear to serve two purposes: they protect jobs during economic downturns, but in a few sectors they have become a routine part of business and can distort the economy.

The second essay looks at how the unemployment insurance system is funded. Currently, employers pay an unemployment insurance tax rate based only on their size, even though some employers cause much more unemployment than others. The study simulates different ways of linking an employer’s tax rate to the benefits claimed by their former workers. Under the current system, about half of total unemployment costs come from employees of firms that contribute less than one-tenth of unemployment insurance payments. The simulations show that alternative systems would make funding fairer, but each system also comes with different trade-offs, such as how complicated it is to administer or whether it also encourages hiring.

The third essay examines how long people can receive unemployment benefits and how changes to this limit affect job-finding. Finland has reduced the maximum duration of benefits twice. The first cut applied only to people with little work experience and had no clear effect on how long they stayed unemployed. The second cut applied to nearly everyone, and reducing the limit by twenty weeks shortened unemployment spells by about three weeks on average. The study also shows that the spike in people leaving the benefit system right after their benefits run out is mostly due to a switch in benefit administration rather than people suddenly finding work much faster.

The fourth essay looks at a wage subsidy that encourages employers to hire people who struggle to find work. In 2015, some regions unexpectedly ran out of subsidy funds, creating a natural experiment. The results show that subsidised jobs did not replace other jobs. The subsidy has different effects on public finances depending on the jobs subsidised: it is positive for private sector jobs, neutral for public sector jobs, and negative for jobs in non-governmental organisations.

Contact Heikki Korpela

Email: heikki.korpela@helsinki.fi