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

  • Erkki Koskela
  • Roope Uusitalo

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 878.

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Date of creation: 2003
Date of revision:
Handle: RePEc:ces:ceswps:_878
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  1. Stephen Machin & Alan Manning, 1998. "The causes and consequences of long-term unemployment in Europe," LSE Research Online Documents on Economics 20255, London School of Economics and Political Science, LSE Library.
  2. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  3. Juha Kettunen, 1993. "Increasing incentives for reemployment," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 51-60, Spring.
  4. 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.
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  8. Jaakko Kiander & Jaakko Pehkonen, 1999. "Finnish unemployment: observations and conjectures," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 94-108, Autumn.
  9. Lawrence Katz & Bruce Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," Working Papers 621, Princeton University, Department of Economics, Industrial Relations Section..
  10. Lars Calmfors & Anders Forslund & Maria Hemström, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," CESifo Working Paper Series 675, CESifo Group Munich.
  11. 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.
  12. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  13. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  14. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  15. Calmfors, Lars & Lang, Harald, 1995. "Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model," Economic Journal, Royal Economic Society, vol. 105(430), pages 601-19, May.
  16. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
  17. 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.
  18. Tomi Kyyrä, 1999. "Post-Unemployment Wages and Economic Incentives to Exit from Unemployment," Research Reports 56, Government Institute for Economic Research Finland (VATT).
  19. Reija Lilja, 1993. "Unemployment benefit system and unemployment duration in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 25-37, Spring.
  20. Stephen Nickell, 1999. "Finnish unemployment : a view from outside," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 62-81, Autumn.
  21. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-21, March.
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