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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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    References listed on IDEAS

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    1. Albertini, Julien & Fairise, Xavier & Terriau, Anthony, 2023. "Unemployment insurance, recalls, and experience rating," Journal of Macroeconomics, Elsevier, vol. 75(C).
    2. Topel, Robert H, 1984. "Experience Rating of Unemployment Insurance and the Incidence of Unemployment," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 61-90, April.
    3. Kyyrä, Tomi & Tuomala, Juha, 2023. "The effects of employers’ disability and unemployment insurance costs on benefit inflows," Labour Economics, Elsevier, vol. 85(C).
    4. Emilia Del Bono & Andrea Weber, 2008. "Do Wages Compensate for Anticipated Working Time Restrictions? Evidence from Seasonal Employment in Austria," Journal of Labor Economics, University of Chicago Press, vol. 26(1), pages 181-221.
    5. Tito Boeri & Pierre Cahuc, 2022. "Labor Market Insurance Policies in the XXI Century," SciencePo Working papers Main hal-03878719, HAL.
    6. Oskar Jost, 2022. "See you soon: fixed-term contracts, unemployment and recalls in Germany—a linked employer–employee analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 601-626, August.
    7. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, vol. 53(1), pages 1-29, January.
    8. Audrey Guo & Andrew C. Johnston, 2021. "The Finance of Unemployment Compensation and Its Consequences," Public Finance Review, , vol. 49(3), pages 392-434, May.
    9. Michael Miller & Robert Pavosevich, 2019. "Alternative Methods of Experience Rating Unemployment Insurance Employer Taxes," Public Budgeting & Finance, Wiley Blackwell, vol. 39(4), pages 28-47, December.
    10. Mark Duggan & Audrey Guo & Andrew C. Johnston, 2023. "Experience Rating as an Automatic Stabilizer," Tax Policy and the Economy, University of Chicago Press, vol. 37(1), pages 109-133.
    11. Julien Albertini & Xavier Fairise & Anthony Terriau, 2023. "Unemployment insurance, recalls, and experience rating," Post-Print hal-04204649, HAL.
    Full references (including those not matched with items on IDEAS)

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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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