Early exit from the labour market through the unemployment pathway in Finland

Abstract

The focus of the study is on patterns of early exit from the labour market in Finland with a special emphasis on the unemployment pathway. The period under review extends from the early 1980s to the turn of the century. The data for the study were obtained from individual-level files formed by combining census data with statistical registries of social security. The study takes a comparative macro-level approach, with comparisons being made between different periods of time. The results are interpreted from the point of view of the connection between early exit, increasing economic openness and structural change in society. In the 1980s, utilization of the unemployment pathway in a given branch depended primarily on how open the branch was to international competition. In the deep economic recession of the 1990s rate of exit was highest in the branches with primarily a domestic focus, which were hardest hit by the recession. The exit rates were remarkably high also in the previously public-sector branches recently opened to competition. After the recession, in 1996–1998, adjustments to international competition seemed to explain a great deal of early exit behaviour. From a broader European perspective the Finnish unemployment pathway, combining economic competitiveness and social cohesion, can be seen as an example of the workability of the European social model. The capability of Finnish early exit policy for adjustment in the face of changing societal and international pressures was further proved in November 2001, when a broad-based agreement on changes in early exit and old age pension schemes was achieved by the labour market partners in line with general objectives put forward by the Government.

Keywords:

• early retirement
• unemployment pathway
• unemployment pension
• aged workers

Notes

Helka Hytti is a senior researcher in the Social Insurance Institution of Finland and a docent of demography at Helsinki University. Her main areas of research are register-based studies on the utilization of early retirement, disability and unemployment benefits in Finland and the comparative analysis of benefit utilization in the light of international labour market and social security statistics.

Finnish pension security consists of two main systems, each of which is defined as statutory basic public provision in terms of the European social protection classification (Eurostat 1996). The national pensions system guarantees a universal right to pension for the entire population in case of old age or disability, and for aging people in case of long-term unemployment. The employment pension system provides corresponding types of pension on the basis of pre-retirement earnings. There are a number of statutory employment pension systems in Finland, for both private and public sectors. The aim with the statutory pensions is to provide the recipient with an income equivalent to 60–66 per cent of the wages or salary on which the pension is based, with no upper limit as to the actual amount of the pension. Because of the scope and the relatively high level of statutory compensation paid, pensions based on labour market agreements or private pension insurance play a relatively minor role in Finland.