Withdrawal from employment of older Finnish workers

This paper contains an empirical analysis of gross job flows in Finland and of the factors that explain the extensive withdrawal of older workers from employment in the 1990s in Finland. Job flows are characterised in terms of employee age and education. The outflow of workers from employment occurs mainly to unemployment, unemployment pensions and disability pensions. The study shows that older workers had a considerably higher propensity to lose their jobs than Finnish employees did in general. Unemployment pensioners and disability pensioners also tend to have shorter educational histories than Finnish workers in general. It is shown that the burden of the firms’ social security payments increases the likelihood of withdrawal from employment. The total withdrawal from employment does not depend on firm size nor on firm-size differences in social security payments. However, at a disaggregated level, disability pensions and unemployment pensions appear as substitutes that are used depending on which one is least costly for the firm. We find that large firms channel their older workers to unemployment pensions or to the so-called unemployment pension tunnel rather than to a disability pension. Small firms do the opposite. Finally, there is persistence in high levels of job destruction, especially in manufacturing, that may relate to skill-biased technical change.