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The Un-Intended Convergence: How the Finnish Unemployment Reached the European Level

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Author Info
Erkki Koskela ()
Roope Uusitalo ()

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Abstract

The Finnish unemployment rose in the early 1990's from three to eighteen percent in four years. Unemployment has then decreased to the average European level, being 8.5 percent in October 2002. In this paper, we describe the shocks leading to this unforeseen increase in unemployment. We then discuss the role of labour market institutions in the adjustment process that has brought unemployment back to 'normal' levels. We argue that these institutions cannot be blamed for the increase in unemployment, but that more flexible institutions could have lead to a more rapid decline in unemployment.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 878.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_878

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Related research
Keywords: unemployment; labour market institutions;

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Holm, Pasi & Honkapohja, Seppo & Koskela, Erkki, 1994. "A monopoly-union model of wage determination with capital and taxes: An empirical application to the Finnish manufacturing," European Economic Review, Elsevier, vol. 38(2), pages 285-303, February. [Downloadable!] (restricted)
  2. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
    Other versions:
  3. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July. [Downloadable!] (restricted)
    Other versions:
  4. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-21, March. [Downloadable!] (restricted)
  5. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does active labour market policy work? Lessons from the Swedish experiences," Working Paper Series 2002:4, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
  6. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
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  7. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 417-34, July. [Downloadable!] (restricted)
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  8. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, vol. 41(1), pages 45-72, February. [Downloadable!] (restricted)
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  9. Jochen Kluve & Christoph M. Schmidt, 2002. "Can training and employment subsidies combat European unemployment?," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 409-448, October. [Downloadable!] (restricted)
  10. Reija Lilja, 1993. "Unemployment benefit system and unemployment duration in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 25-37, Spring. [Downloadable!]
  11. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 361-408, October. [Downloadable!] (restricted)
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  12. Jaakko Kiander & Jaakko Pehkonen, 1999. "Finnish unemployment: observations and conjectures," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 94-108, Autumn. [Downloadable!]
  13. Carling, Kenneth & Edin, Per-Anders & Harkman, Anders & Holmlund, Bertil, 1996. "Unemployment duration, unemployment benefits, and labor market programs in Sweden," Journal of Public Economics, Elsevier, vol. 59(3), pages 313-334, March. [Downloadable!] (restricted)
  14. Stephen Nickell, 1999. "Finnish unemployment : a view from outside," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 62-81, Autumn. [Downloadable!]
  15. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  16. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  17. Juha Kettunen, 1993. "Increasing incentives for reemployment," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 51-60, Spring. [Downloadable!]
  18. Tomi Kyyrä, 1999. "Post-Unemployment Wages and Economic Incentives to Exit from Unemployment," Research Reports 56, Government Institute for Economic Research Finland (VATT). [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2005. "Who bear the burden of wage cuts? Evidence from Finland during the 1990s," Labor and Demography 0504009, EconWPA. [Downloadable!]
  2. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany. [Downloadable!]
  3. Tomi Kyyrä & Ralf Wilke, 2004. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland," Discussion Papers 346, Government Institute for Economic Research Finland (VATT). [Downloadable!]
    Other versions:
  4. Tomi Kyyrä, 2007. "Studies on Wage Differentials and Labour Market Transitions," Research Reports 133, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  5. Tomi Kyyrä & Ralf A. Wilke, 2006. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland Revised," Discussion Papers 396, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  6. Böckerman, Petri & Hämäläinen, Ulla & Uusitalo, Roope, 2007. "Labour Market Effects of Polytechnic Education Reform: The Finnish Experience," MPRA Paper 4412, University Library of Munich, Germany. [Downloadable!]
  7. Böckerman, Petri & Ilmakunnas, Pekka, 2007. "Unemployment and self-assessed health: Evidence from panel data," MPRA Paper 1798, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  8. Koskela , Erkki & Uusitalo , Roope, 2004. "Unintended convergence – how Finnish unemployment reached the European level," Research Discussion Papers 6/2004, Bank of Finland. [Downloadable!]
  9. Heidi Soininen, 2007. "Finnish Evidence of Changes in Labor Market Matching," Finnish Economic Papers, Finnish Economic Association, vol. 20(1), pages 57-71, Spring. [Downloadable!]
  10. Castrén, Olli & Takalo , Tuomas & Wood , Geoffrey, 2004. "Labour market reform and the sustainability of exchange rate pegs," Research Discussion Papers 22/2004, Bank of Finland. [Downloadable!]
    Other versions:
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