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Experience rating the unemployment insurance tax: simulation results for Finland

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  • Korpela, Heikki

Abstract

I study the potential effects of introducing experience rating for the unemployment insurance tax in Finland. I simulate an array of potential rating systems using register data for all wages and unemployment from 2001 to 2021. Under the current tax regime, about half of all unemployment costs are attributable to employers who pay less than 10% of the UI tax. All the simulated systems would significantly reduce this discrepancy but also differ markedly from each other. The choices in designing the system are reflected in its administrative burden, how strongly it incentivises hirings and discourages dismissals, and how quickly it responds to employment changes.

Suggested Citation

  • Korpela, Heikki, 2025. "Experience rating the unemployment insurance tax: simulation results for Finland," Working Papers 173, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:173
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    File URL: https://www.doria.fi/handle/10024/190718
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    More about this item

    Keywords

    unemployment insurance; experience rating; Labour markets and education; D22; H25; H71; J32; J38; J65; fi=Sosiaaliturva|sv=Social trygghet|en=Social security|; fi=Työmarkkinat|sv=Arbetsmarknad|en=Labour markets|; fi=Verotus|sv=Beskattning|en=Taxation|;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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