The theory of optimal unemployment insurance and Finland’s unemployment security system
The purpose of this study is to bring additional perspectives to the debate taking place in Finland on the necessity of reforming earnings-related unemployment security. When the Finnish economy fell into recession in 1992, the government began planning a reduction in unemployment security expenditure as part of a comprehensive programme of public spending cuts. The plan included reducing earnings-related unemployment benefits for those who had been unemployed for more than six months. The plan was, however, abandoned, partly due to pressure from the trade union movement. This spring the issue has once again become topical, as the social expenditure committee has submitted its report to the government, proposing reductions in earnings-related unemployment benefits after approximately six months of unemployment. Juha Kettunen has also proposed that reductions in earnings-related unemployment security should be reintroduced. He justifies his position with research findings according to which the 20 percent reduction in earnings-related security after 100 days of unemployment that was in force in 1985 and 1986 increased the probability of unemployed persons finding employment (Kettunen 1992, 213).
The study demonstrates that unemployment security should not be evaluated solely on the basis of how it affects the probability of unemployed persons finding employment. From the perspective of societal welfare, it is important that risk-averse individuals are able to insure the continuation of their income at a relatively stable level, even if an adverse event such as illness, loss of working capacity, or temporary unemployment befalls them. If the ability of risk-averse individuals to insure their income against, for example, unemployment is weakened, societal welfare diminishes. (AI translation)
- ISSN: 1236-7176
- ISBN: 951-9282-72-6
- Publication in PDF-format
