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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
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Handle: RePEc:ces:ceswps:_878
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  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.
  2. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Jaakko Kiander & Jaakko Pehkonen, 1999. "Finnish unemployment: observations and conjectures," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 94-108, Autumn.
  4. 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.
  5. Reija Lilja, 1993. "Unemployment benefit system and unemployment duration in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 25-37, Spring.
  6. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
  7. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 361-408, October.
  8. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  9. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, vol. 82(1), pages 313-21, March.
  10. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," Seminar Papers 700, Stockholm University, Institute for International Economic Studies.
  11. Stephen Nickell, 1999. "Finnish unemployment : a view from outside," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 62-81, Autumn.
  12. 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.
  13. Juha Kettunen, 1993. "Increasing incentives for reemployment," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 51-60, Spring.
  14. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  15. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  16. Tomi Kyyrä, 1999. "Post-Unemployment Wages and Economic Incentives to Exit from Unemployment," Research Reports 56, Government Institute for Economic Research Finland (VATT).
  17. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  18. 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.
  19. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  20. 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.
  21. Kettunen, Juha, . "Re-employment of Finnish Unemployed Workers," ETLA A, The Research Institute of the Finnish Economy, number 17.
  22. 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.
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