The puzzle of young people’s income and livelihoods

Abstract

The study examines the labour market position, incomes, and livelihoods of young people, mainly aged 16–32. It uses a so-called impact dataset based on the employment statistics register for the years 1990–1999. The report first builds an overall picture of young people’s position in the labour market, their gross personal incomes and their composition, as well as their position in income distribution from the perspective of income poverty. It then separately examines the incomes and livelihoods of students, young families with children, and the unemployed. Finally, the information obtained is used to assess the effects of the 2005 pension reform on young people. Regarding the pension reform, the analysis assesses the lowering of the minimum age for pension accrual, pension accrual from completed qualifications, and the effects of periods on social benefits—maternity and parental allowance periods, as well as home care allowance periods—on future pensions.

Earnings play a larger role in young people’s income formation than is generally assumed. This is influenced, among other things, by the widespread employment of students and the fact that, despite a relatively high unemployment rate, unemployment spells among young people are generally short. Poverty increased among young people after the mid-1990s. Among young people, falling below the poverty line increasingly affected young families with children, students, and the unemployed. The situation of young single parents appears to have deteriorated in particular.

In the evaluation of the 2005 pension reform, it appears that the pension accrued at ages 18–22 will have a relatively small impact on the total future pension. Pension accrual from completed qualifications corresponds, for university and polytechnic graduates, to the annual pension accrual of an average wage earner, and for graduates of vocational institutions to about three-quarters of this amount. The total pension accrual of students (from earnings and qualifications combined) rises after the reform to a level relatively close to that of an average non-studying young person.

For parental allowances, pension accrual becomes more comprehensive than before due to the removal of the so-called one-year rule and the inclusion of those receiving minimum maternity allowance. As a result of the pension reform, pension accrual is granted during periods of home care allowance for children under the age of three for individuals not in paid employment during the benefit period. Because the use of the home care allowance is very common, a large number of mothers of small children will be included in this publicly funded pension accrual system. It is difficult to provide an exact estimate of the effect on pension accrual due to overlaps between employment and benefit receipt, but for slightly more than half of mothers of one- and two-year-old children, pension accrual applies in full for the entire year. The pension accrual from one year of home care allowance corresponds to approximately one quarter of the annual accrual of full-time working women of childbearing age. The estimates are based on data from 1995–1999 on individuals’ employment histories and incomes. Since youth employment is highly sensitive to economic cycles, the above estimates should be interpreted with caution. (AI translation)

Publication Information

Hämäläinen, U. (2004), Nuorten tulojen ja toimeentulon palapeli, Finnish Centre for Pensions, Studies 2004:1.

• ISSN: 1236-7176, 1236-3049 (ETK)
• ISBN: 951-691-023-8 (ETK)
• Press Release in Finnish