Election results affect earnings-related unemployment security

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• Income security

The election result signals a shift to the right in Finnish politics. The means of balancing public finances will be a key issue when the new government is formed. A right-leaning government appears the most likely outcome. The election manifestos of right-leaning parties included reforms that can be interpreted as weakening unemployment security.

Cost-efficiency considerations

Rebalancing public finances featured prominently in the National Coalition Party’s election manifesto. Rebalancing means increasing income and reducing expenditure. In unemployment security, the National Coalition Party aims to accomplish this by eliminating welfare traps and staggering earnings-related unemployment security.

The proposals are grounded in the idea that people make a choice between employment and unemployment by comparing their costs and income under each option. If employment can be made more attractive in such a comparison, more people will choose it. The National Coalition Party’s principle is that additional income earned by working should not be consumed by taxes or compensating for a loss of social security.

Staggering a strong factor in election manifestos

The National Coalition Party does not specify precisely which benefit traps it will eliminate, and defining them could be difficult. Benefit traps are typically complex entities that may include several types of social benefits, taxation, work-related travel expenses and daycare fees.

On the other hand, staggering earnings-related unemployment security is, in principle, a fairly straightforward measure. Under this principle, the amount of earnings-related unemployment security changes over time. The longer a person is unemployed, the less they receive in earnings-related unemployment security. As the benefit becomes ever smaller, the incentive to take on work increases. The challenge is that the causes of unemployment are more complicated in reality than mere choices that an unemployed person can make. In other words, a person cannot simply choose to become employed. Reducing earnings-related unemployment security may also lead to new benefit traps if other social benefits become applicable.

The Finns party also considers staggering earnings-related unemployment security a potential means of incentivising people to seek employment more actively than at present. The Finns party justifies this option based on research data revealing a spike in employment towards the end of the limit for receiving earnings-related unemployment security. The conclusion is that unemployed people actively find work when their earnings-related daily allowances end. The employment peak can, therefore, be shifted towards the onset of unemployment by staggering or shortening the earnings-related unemployment security.

In YTK’s view, the situation is not quite as straightforward as this because the “employment peak” is often misunderstood. When an unemployed person stops receiving an earnings-related daily allowance, it does not necessarily mean they have found employment. However, studies typically assume that people enter employment after the maximum payment period.

The other parties expected to be included in a right-leaning government are the Christian Democrats and the Swedish People’s Party. Both mention staggering earnings-related unemployment security in their election manifestos. If we end up with a right-of-centre government, staggered earnings-related unemployment security will likely be prepared and introduced during the coming parliamentary term.

Not necessarily out of your pocket

Staggering earnings-related unemployment security can be interpreted as weakening unemployment security because less earnings-related security will be paid compared with the status quo. However, changes like these do not typically affect people who have already been granted earnings-related unemployment security. The change will apply to people whose daily allowance periods begin after the new law takes effect. Even then, the weaker level of security may not affect everyone in practice because people usually move from an earnings-related daily allowance into employment fairly quickly, so staggering may begin too late to make a difference.

Staggering may also be implemented by paying a higher earnings-related daily allowance at the onset of unemployment, so staggering will have the effect of increasing the daily allowance paid. However, this may be unlikely if the objective is to slow the growth of public spending. 

The details will become clear if the proposal is agreed upon as part of the government programme and preparation of the change begins. We will monitor this matter and communicate the progress.

Other possible changes

The election manifestos of the right-leaning parties included some provisions on general earnings-related unemployment security. The matter will certainly be clarified, but implementation may be postponed until the following parliamentary term because the change is so substantial that it may be difficult to finance in the present economic climate.                 

Previously, the drafting of the act already included combined insurance and a change that would substitute an income-based condition for the working condition. It is possible that the drafting of these matters will resume.

Under combined insurance, self-employment and work done as an employee could be combined towards the working condition.

Making the working condition income-based would mean that the amount of earnings would be considered instead of the working time. This would change the working condition to an earning condition for an unemployment daily allowance.

It is also possible that the tasks of unemployment funds will be reassessed in the coming parliamentary term. In terms of reaching the employment target, it would be useful if unemployment funds could help their members find work and remain in employment.