Assessing the impact of social security cuts on workers in the private service sectors

Abstract

This report examines the impacts of the downscaling of unemployment benefits, the general housing allowance, and social assistance implemented by Prime Minister Petteri Orpo’s government on the income and employment of workers in sectors represented by the Service Union United (PAM). The primary analytical method applied in the study was based on calculations using the SISU microsimulation model. In addition, descriptive statistical analyses were conducted with data from Statistics Finland’s Incomes register data and Kela’s social assistance statistics. These analyses were used to assess the effects of changes in unemployment benefits, housing allowance and social assistance across groups defined by gender, part-time status and income level. Regarding the effects on employment, the report reviews existing literature on how the abolition of the earned income disregard influences work incentives.

According to the SISU model calculations, about one quarter of workers in the service sectors experience a decline in their disposable income. Prior to the reforms, about one in six workers in the service sectors receive housing allowance; following the changes, the share drops to about one in ten and the average level of support decreases by about one third. The share of unemployment benefit recipients also declines, but much less. The reforms further raise dependence on social assistance; the proportion of recipients grows from 2.7 percent to 4.1 percent, and the overall need for support increases as well.

According to SISU model calculations, the social security reforms have stronger adverse effects on the incomes of part-time workers in the service sectors, especially on women, and on those in the lower income deciles, while the effects on full-time workers are only marginal.

Among those receiving adjusted unemployment benefits, the decline in disposable income is greater than in other groups within the service sectors. For this group, the reliance on social assistance also increases the most. Approximately seven percent of workers in the service sectors received adjusted unemployment benefits.

Descriptive statistical analyses based on the income register data also indicate that both the proportion of benefit recipients and the average benefit levels have declined, particularly among part-time workers. Previous research and recent member surveys conducted by unemployment funds support the conclusion: the removal of earnings disregard weakens the financial incentives for part-time work, while its impact on transitions to full-time employment remains limited.

• ISSN: 2984-3308 (Online)
• ISBN: 978-952-209-229-8 (Online)
• JEL: I38, H53, H55, J21, D31
• Publication in PDF-format