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

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  • Erkki Koskela
  • Roope Uusitalo

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-02/cesifo_wp878.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 878.

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

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Keywords: unemployment; labour market institutions;

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References

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  1. Blanchard, O.J. & Diamond, P., 1990. "Ranking, Unemployment Duration, And Wages," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 546, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  3. Calmfors, Lars & Lang, Harald, 1995. "Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(430), pages 601-19, May.
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  5. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Departmental Working Papers, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano 2002-16, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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  11. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," Seminar Papers, Stockholm University, Institute for International Economic Studies 700, Stockholm University, Institute for International Economic Studies.
  12. Jochen Kluve & Christoph M. Schmidt, 2002. "Can training and employment subsidies combat European unemployment?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 409-448, October.
  13. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  14. Juha Kettunen, 1993. "Increasing incentives for reemployment," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 6(1), pages 51-60, Spring.
  15. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 313-21, March.
  16. Lawrence F. Katz & Bruce D. Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," NBER Working Papers 2741, National Bureau of Economic Research, Inc.
  17. Stephen Nickell, 1999. "Finnish unemployment : a view from outside," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 12(2), pages 62-81, Autumn.
  18. 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, Elsevier, vol. 59(3), pages 313-334, March.
  19. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  20. 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, Elsevier, vol. 38(2), pages 285-303, February.
  21. Tomi Kyyrä, 1999. "Post-Unemployment Wages and Economic Incentives to Exit from Unemployment," Research Reports 56, Government Institute for Economic Research Finland (VATT).
  22. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 55-74, Summer.
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Citations

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Cited by:
  1. Tomi Kyyrä & Ralf A. Wilke, 2007. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(1), pages 154-182, 03.
  2. 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.
  3. Petri Böckerman & Seppo Laaksonen & Jari Vainiomäki, 2005. "Who bear the burden of wage cuts? Evidence from Finland during the 1990s," Labor and Demography, EconWPA 0504009, EconWPA.
  4. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2009. "Micro-level Rigidity vs. Macro-level Flexibility: Lessons from Finland," MPRA Paper 15061, University Library of Munich, Germany.
  5. Castrén, Olli & Takalo, Tuomas & Wood, Geoffrey, 2004. "Labour market reform and the sustainability of exchange rate pegs," Working Paper Series, European Central Bank 0406, European Central Bank.
  6. Böckerman, Petri & Ilmakunnas, Pekka, 2007. "Unemployment and self-assessed health: Evidence from panel data," MPRA Paper 1798, University Library of Munich, Germany.
  7. Tomi Kyyrä, 2007. "Studies on Wage Differentials and Labour Market Transitions," Research Reports 133, Government Institute for Economic Research Finland (VATT).
  8. Koskela , Erkki & Uusitalo , Roope, 2004. "Unintended convergence – how Finnish unemployment reached the European level," Research Discussion Papers, Bank of Finland 6/2004, Bank of Finland.
  9. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2004. "Pay-setting Systems in Europe: On-going Development and Possible Reforms," EEAG Report on the European Economy, CESifo Group Munich, CESifo Group Munich, vol. 0, pages 61-83, October.
  10. Kyyrä, Tomi, 2010. "Partial unemployment insurance benefits and the transition rate to regular work," European Economic Review, Elsevier, Elsevier, vol. 54(7), pages 911-930, October.
  11. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
  12. Tomi Kyyrä & Ralf A. Wilke, 2006. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland Revised," Discussion Papers, Government Institute for Economic Research Finland (VATT) 396, Government Institute for Economic Research Finland (VATT).
  13. Virve Ollikainen & Tomi Kyyrä, 2006. "To Search or Not to Search? The Effects of UI Benefit Extension for the Elderly Unemployed," Discussion Papers, Government Institute for Economic Research Finland (VATT) 400, Government Institute for Economic Research Finland (VATT).
  14. Heidi Soininen, 2007. "Finnish Evidence of Changes in Labor Market Matching," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 20(1), pages 57-71, Spring.

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