Boosting employment in Finland

In the context of the COVID-19 pandemic and resulting economic contraction and government debt build-up, the government is formulating reforms to raise employment by 80 thousand workers by 2029. Finland’s employment rate has been lagging behind the Scandinavian Nordics, with most of the gap attributable to older workers, who have more favourable access to early retirement schemes than their Scandinavian counterparts. To restrict their use, extended unemployment benefit, which is paid to unemployed persons aged 61 or more after normal unemployment benefit expires until they retire or reach 65, should be phased out and non-medical conditions should no longer be taken into account for disability benefit applications of persons aged 60 or more. Activity rates for mothers of young children are also lower in Finland than in the Scandinavian Nordics mainly owing to Finland’s generous homecare allowance. It should be reduced and access to convenient early childhood education and care services expanded to improve mothers’ work incentives. By increasing mothers’ work experience at critical points in their careers, such a reform would also help to narrow Finland’s large gender wage gap. As part of its 2021 budget, the government is setting out labour market reforms to increase employment by 31 to 36 thousand workers. Such reforms should focus on promoting employment of older workers.