Passivoiko työttömyysturva (pdf) - Mol.fi

SUMMARY
Ilkka Virjo, Simo Aho, and Hannu Koponen: Does Unemployment Security Make People Passive? A
Study of the Effects of Unemployment Insurance Benefit Exhaustion And Other Aspects of the Finnish
Unemployment Security System. Ministry of Labour: Studies in Labour Policy. Helsinki 2006.
The negative incentive effects of unemployment security are largely regarded as self-evident. Suggestions
have been made that reducing the level or duration of unemployment benefits would significantly decrease
unemployment. The results from earlier Finnish studies are, however, contradictory.
The main research question is, whether it can be empirically shown that the earnings-related unemployment
insurance (UI) benefit makes people passive and if so, how large the effects are. The main research instrument
is the exhaustion of UI benefit after 500 working days (about two years) of unemployment. If incentives
matter, the probability to exit unemployment should rise around the time of this incentive “step”. When
this occurs, we call it a “step effect”.
The research material consists of a large longitudinal register-based panel data set. The data includes information
about 350 000 Finnish individuals. In order to study benefit exhaustion, we have picked out a sample
of “reference unemployed”. These people start their unemployment in 1995-98 so that they have full 500
days of UI or flat-rate unemployment assistance (UA) entitlement. Their labour market career is then followed
up until the end of the year 2002. In particular, we studied how many entitlement days they had used,
and if they had earned a new entitlement period at some point.
UI benefit exhaustion seems to increase the hazard rate for exit from unemployment. This cannot be observed
for those on UA benefit, who do not have the same incentives at the time of the step. Some part of the
step effect can be explained by people “using” the benefit for other purposes than active search for employment
– e.g. child care at home.
A very interesting result is that the step effect is as strong or even stronger when unemployment ends to an
active labour market policy measure (ALPM). How do incentives produce this effect? An unemployed person
may well want to take part in an ALPM near benefit exhaustion, but cannot alone decide about the matter.
Underlying factors seem to be partly structural, partly related to the relation between the unemployed
person and the unemployment official.
The step effect is, however, rather small compared to unemployment as a whole. The magnitude of the effect
was approximated by calculating how many people would have exited unemployment, if the hazard had not
increased around benefit exhaustion. The incentives caused by UI benefit exhaustion seem to affect the labour
market career of about three per cent of all people who start their unemployment on UI. The effect on
general unemployment is considerably smaller for a number of reasons. Firstly, the step only affects those on
UI benefit – less than half of the Finnish unemployed are on that particular benefit. If there were no effect
making people more passive, they would exit unemployment sooner. They would, however, to some extent
replace other job-seekers, as incitements for the unemployed do not increase the demand for labour. Furthermore,
a considerable share of the step effect is directed to ALPMs, not open market employment.
The figures cannot be directly transferred from the data to the level of Finnish unemployment. Our rough
estimate is that if the observed effect of the UI was completely removed and other factors remained the same,
the Finnish open unemployment would decrease by about 500 – 1500 people. However, the benefit may
increase employment as well by drawing people into the labour market. This effect may well outweigh the
effect on unemployment.
We were able to study the effect of the level and the replacement rate of the UI benefit only on a crude level
by using pre-unemployment income as an indicator. These factors seem to have a very small independent
effect on re-employment. Insofar as there is an effect, those with a higher benefit (and thus a lower replacement
rate) do get re-employed faster than others. The effect of benefit exhaustion was similar regardless of
previous income.
The role of ALPMs in qualifying and re-qualifying for UI benefit was still very significant in 1996. In recent
years, this role has dramatically diminished. The share of “ALPM assisted” entitlements decreased from 40
per cent in 1996 to 15 per cent in 2002. The change is even more dramatic when studying those who have
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