FINLAND. The Finnish unemployment compensation system included three types of benefits. The most important features of the system are the following:

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1 Basic income support and services for uninsured jobseekers: German and Finnish institutions and reforms compared Comments and Statements Simo Aho Work Research Centre, University of Tampere, Finland 1. Finnish Context In Finland, institutions and several recent reforms have many common features with the German system and its actual reform. In the following I describe and comment most important of these. 1.1 Unemployment benefit systems The Finnish unemployment compensation system included three types of benefits. The most important features of the system are the following: Unemployment Insurance (UI) Covers 42 per cent of all unemployed ( people)* Employment condition for first-time qualifiers is ten months employment during the last 28 months; if the person has been on UI before, the renewal condition is eight months of employment during an observation period of 24 months Insurance condition: membership in an unemployment insurance fund during the full period of fulfilling the employment condition Replacement rate roughly 60% of earlier earnings (or less, if salary has been high); increased if supporting minors Maximum duration: 500 working days = roughly two years Age-specific extension: if the limit of 500 days has not passed when the receiver turns 59, extended until the start of old-age pension (at the age of according to individual choice); for those born 1949 or earlier, age limit is 57 with a right to unemployment pension at the age of 60 (abolished for later cohorts) Unemployment Allowance (UA) Covers 7 per cent of all unemployed ( people)* Employment condition as UI, no membership condition Flat-rate benefit, in average around 20% of earlier mean earnings, increased if supporting a minor Maximum duration and age-specific extension as in UI Labour Market Support (LMS) Covers 50 per cent of all unemployed ( people)* Receivers have either received the maximum amount of UI or UA, or have never fulfilled the employment condition Flat-rate benefit, same amount as UA, but means-tested (own and spouse s other income considered); reduced if the receiver is a youngster living with parents

2 Not means-tested for 180 working days after maximum amount of UI or UA, nor for over 54-year-olds Not means-tested during active measures, during which there is also a small increase of the benefit No maximum duration Labour market entrants, who have never fulfilled the employment condition, must wait for five months until receiving the benefit. Under 25-year-olds qualify only if they have completed occupational education or have applied for one * Annual average in 2003 In Finland it is quite common that unemployment benefit receivers also receive subsistence support (= social assistance) 1, because unemployment benefit is insufficient to provide legal minimum income level (defined according to the size of household and eventual particular needs). Figure 1 shows that about half of LMS receivers also receive subsistence support ; of UI receivers this share has in recent years been about ten per cent and of all unemployed benefit receivers in average about one third (source: Virjo & al. 2005) Figure 1 Unemployed (at least two months of unemployment during the year): share of those belonging to households that have received social assistance during the year by type of unemployment benefit UI UA LMS All unempl 1 Municipal means-tested benefit to provide means for the legal minimum standard of living; typically filling the gap between the level of other benefits / incomes and the legal minimum; adjusted with housing allowance usually being a part of benefit package of low income receivers.

3 1.2 Reforming PES Modernisation of Finnish PES started in 1998 and has continued ever since in succeeding waves. One crucial element of the comprehensive reform of 1998 was the introduction of individual jobseeking plans to be drawn before unemployment has lasted five months (for under 25-year-olds, before three months) and to be revised if unemployment continues. Other elements were norms concerning how often interviews with case worker should take place, introduction of job-seeking courses and job clubs, as well as definition of the rights and duties of unemployed job seekers (including obligation to co-operate in increasing employability). The job-seeking plan has a character of contract between job-seeker and PES, and it should be signed by both parties. Nowadays failure to fulfill actions included in the plan can lead to sanctions. The plan identifies the immediate goals and steps to be taken in order to find employment or to increase employability in the long run. The plan should be basis for participation in activation measures. Special procedures are applied for e.g. able-to-work social assistance receivers ( activation plans ) and immigrants ( integration plans ). A recent evaluation shows that only about a half of the plans are drawn or revised inside the timelimit given as the goal (seemingly due mainly to insufficient resources), and that about half of the goals of the plans are achieved during the following twelve months (although unemployment may continue, implicating the setting of a further goal). The plans are not considered as important (or not even recognised) by a majority of the job-seekers. However, if made properly, the plans seem to be helpful for at least a part of job-seekers The plans also make the service process visible and support it. (Aho & al 2006) An important step was taken with the introduction of experimental Joint Service Centres in These centres provided single gateway multi-professional services for long-term unemployed and combined the efforts and expertise of PES, municipal social agencies and the Social Insurance Institution (state agency for administration of universal social benefits including LMS and, for example, various rehabilitation measures and benefits). Health and rehabilitation services, training providers and organisations of the third sector were also involved in the provision of services and activation measures. This was followed by establishment of regular Labour Force Service Centres (LAFOS) with a very similar profile as Joint Service Centres in This reform is a part of a general differentiation of PES services between ordinary and targeted services, with the aim of developing both. LAFOS are established only in densely populated areas of the country. There are 127 local PES offices and now 39 LAFOS (many of them are regional, i.e. operate in an area of several PES offices). LAFOS do not automatically serve all job-seekers with employability problems customers are assigned to LAFOS by local PES or social agency on the basis of need evaluation. The problem is that LAFOS are able to serve only part of those who seem to be in need of this kind of service, and service process is typically quite long (a couple of years or longer). The aim is that LAFOS should cover about 10 per cent of unemployed job-seekers in the future, but the share of those with severe employability problems is much higher. This has led to selection problems and long waiting times before access to LAFOS is possible.

4 An intermediate evaluation shows that LAFOS has been well received by customers and staff and the initial difficulties of joining different work cultures have mainly been overcome. However, the role and management of LAFOS needs clarification. (Arnkil & al 2007; Arnkil 2007) Results of an impact evaluation of LAFOS will be available only in spring 2008, but evaluation of the experimental phase ( Joint Service Centres ) showed that activation rate increased and impact on later employment was seemingly positive, although proper control of selection bias was not possible, and only a relatively small share of customers had ended their service process at the time of evaluation (Arnkil & al 2004). It seems that a solution for a considerable part of the customers is difficult indeed or impossible to find. Development of a method of statistical profiling of job-seekers, in order to help defining the need of services and targeting of the measures, is also started recently (Moisala & al 2006). 1.3 Activation of LMS receivers General activation rate in Finland has been about 20% and has not varied much according to the type of the received unemployment benefit (Aho 2005). Participation has not been obligatory, and great majority of participants participate willingly (Aho & al 2005). If unemployment continues or is repeated, almost all participate in the long run (with the exception of the elderly with extended right to UI benefit). Repetitive participation is very common. (Aho & Koponen 2007) Originally, when LMS was introduced in 1994, its official aim was to serve activation of especially the young with poor work experience entering the labour market (thus the name Labour Market Support ). However, this benefit turned out to become mainly a subsistence allowance for the long-term unemployed, largely having received maximum length of UI, without particular activating impact (Aho & Virjo 2003). The programme of the government that was in office until recent elections included transforming of LMS into a true activation support. In 2006, the following reforms were launched: The long-term unemployed LMS receivers have a right and, in fact, are due (sanctions in case of refusal) to participate activation measures that are considered to increase employability. It is interesting to note that earlier introduction of rather similar activation norms in Denmark and Sweden was targeted to UI benefit receivers and the norms are applied at an earlier phase of unemployment. One of the central goals of the reform was to increase the (earlier low) involvement of municipalities in the activation of the unemployed with low employability. This is pursued with financial incentives: now the municipalities must pay a part of the cost of passive LMS (earlier totally paid by the state), while the state remains responsible of all the costs during activation. Evaluations of the impact of this reform are not yet available.

5 2. Transferability The most crucial differences between the relevant German and Finnish arrangements and their actual reforms seem to be: Targeting of benefits. In Germany, UB2 is for all those, who are able to work but do not qualify for UI, and for the members of their households. In Finland, LMS is for those registered as unemployed job-seekers and available for a full-time job, who do not qualify for UI or UA. All able to work must register themselves as unemployed jobseekers before they can get social assistance; in Germany this has seemingly not been necessary? Targeting of services. In Finland, LAFOS are single gateway multi-professional service centres for those unemployed, who have employability problems (mainly LMS receivers) and who have been assigned to LAFOS by PES or municipal social agency. In Germany, all UB2 receivers (including household members who may not be unemployed) are supposed to be served by a single gateway unit. Administration of benefits. In Germany, benefit decisions are made in the new service units. In Finland, routine benefit decisions are generally made (typically before assignment to LAFOS) in municipal social agency (concerning subsistence support ) and in SII (concerning LMS and, typically, housing allowance); in some of the LAFOS, changes or additions to these decisions can be made without a need to visit other offices (practices vary locally). Administration of services. In Germany, the services for UB2 receivers are provided by formally established consortia of PES and municipalities, or in some cases by licensed municipalities alone, or in even fewer cases by PES and municipalities separately. In Finland, LAFOS are not formally independent organisational units but organisations based on (local, actually rather informal) co-operation contracts between partners, and act under management jointly defined by the partners. As far as I can see, available evaluations do not provide any arguments in favour for revising the Finnish system into the direction of the German system (although the Finnish system may need improvement). Here I may add that joining of benefit regimes of the unemployed and their inactive family members seems fundamentally alien to the Finnish (Nordic?) traditionally individualised social security system, and that in Finland it were impossible to find resources for LAFOS type service provision for all the LMS-receivers. 3. Relevant issues Unemployment has continuously decreased in Finland for a long time, and this decrease has accelerated recently. Unemployment rate in February 2007 was 7.5%, while in February 2006: it was 8.4%. Clear indications of threatening labour shortages in some occupations, especially in capital area, can bee seen. This actualises the need to mobilise unemployed or inactive labour reserves. Employment rate in Finland is relatively high (68%) but, however, still clearly lower than before the recession of early 1990 s (74%).

6 At the same time, persistent structural unemployment remains to be a severe problem. As in Germany, the risk of becoming unemployed is much smaller than the risk of remaining in unemployment. Although unemployment is often interrupted with activation measures or casual work, it is very common that unemployment is later repeated. At least half of the unemployed belong to a group that has not been in a steady job at the open labour market for several years, although the official share of the long-term unemployed (at least 12 months of continuous unemployment) is only 26% of the unemployed (Aho 2004) As in Germany, a relatively large proportion of the unemployed have health problems (Aho & al 2005). In the Finnish system, it is easier to live on unemployment benefits for a long time than on sickness or disability benefits. References Aho Simo & Hannu Koponen (2007): Työvoimapoliittisiin toimenpiteisiin osallistuneiden seuranta II. Tutkimus rekisteriaineistosta vuosilta Työpoliittinen tutkimus 324. Helsinki: Työministeriö Aho Simo, Hannu Koponen & Ilkka Virjo (2006): Työnhakusuunnitelmien toteutumisen seuranta. Työpoliittinen tutlkimus 319. Helsinki: Työministeriö. Aho, Simo (2005): Työmarkkinatuen saajien rakenne, työhistoria ja osallistuminen aktiivitoimiin. Työhallinnon julkaisu 349. Helsinki: Työministeriö Aho, Simo, Ilkka Virjo, Päivi Tyni & Hannu Koponen (2005): Työttömät ja palvelutarve. Työttömille kohdistetun kyselyn ja työnhakusuunnitelmien analyysin tuloksia. Työpoliittinen tutkimus 271. Helsinki: Työministeriö Aho, Simo (2004): Kroonisen työttömyyden laajuus, rakenne ja syntytausta. Työpoliittinen tutkimus 261. Helsinki: Työministeriö. Aho, Simo & Ilkka Virjo (2003): More Selectivity in Unemployment Compensation in Finland: Has it Led to Activation or More Poverty? In: Guy Standing (ed.), Minimum Income Schemes in Europe, Geneva: International Labour Office. Arnkil, Robert (2007): The Finnish Experience: Better results with broad cooperation in employment. Paper presented at the Global Workplace Conference in Modena Arnkil, Robert, Vappu Karjalainen, Peppi Saikku, Timo Sangar & Sari Pitkänen (2007): Työvoimatoimistot ja työvoiman palvelukeskukset tänään ja huomenna. Työhallinnon julkaisu 373. Helsinki: Työministeriö. Arnkil, Robert, Vappu Karjalainen, Simo Aho, Tuukka Lahti, Sanna-Mari Lyytinen & Timo Spangar (2004): Yhteispalvelusta palvelukonseptin kehittämiseen. Yhteispalvelukokeilun arvioinnin loppuraportti. Työhallinnon julkaisu 339. Helsinki: Työministeriö.

7 Moisala J, Suoniemi I & Uusitalo R (2006): Työttömien tilastollinen profilointi. Työpoliittinen tutkimus 316. Helsinki: Työministeriö Virjo Ilkka, Aho Simo ja Koponen Hannu (2006): Passivoiko työttömyysturva? Tutkimus ansioturvan päättymisen vaikutuksista ja eräistä muista työttömyysturvan piirteistä. Työpoliittinen tutkimus 303. Helsinki: Työministeriö