The success and failure in the Finnish labor market of different demographic groups

Abstract

Data on flows between employment unemployment and not in the labor force states are unavailable for Finland but some insights may be gained by the indirect and more traditional methods used in this paper. As these methods are not substitutes for analyses of flow data the papers results should be interpreted as suggestive. The paper introduces and estimates a simple model of both employment and labor force participation behavior of different demographic groups. The focus is on differences between the groups in the simultaneous cyclical fluctuations in these 2 variables and the pattern of unemployment variation of age-sex groups which arises from differences in participation and employment is examined. The paper utilizes the same apparatus to scrutinize long-run changes in the levels of age-specific unemployment rates discussing the impact of the institutional change brought about by the 1972 Employment Law. This exercise indicates that taking into account both employment and labor force participation variations is essential in order to understand the short-run cyclical movements in unemployment in the Finnish labor market as well as secular changes in unemployment that have occurred during the last 2 decades. Groups with higher than average unemployment rates respond to an increase in available jobs by increasing their participation thereby giving rise to the impression that it is very difficult to reduce their unemployment rates. This is expecially the case with teenagers and the old. Prior to 1972 females of nearly all ages belonged to the category displaying substantial fluctuations in participation but this no longer holds true from 1972. This is consistent with a reduced discouragement of women when demand slackens. It appears that the extension of the unemployment assistance system of 1972 may have reinforced the tendency towards a higher degree of permanency in female labor force attachment and that the extension did not only contribute to an increase in unemployment but also to an even greater increase in participation and consequently to an increase in employment as well. Too little is known about the interaction of other factors to make strong claims about which is (are) the causa causans of the simultaneous increase in employment and unemployment. Yet this suggests that the unemployment figures between the period before and after 1972 are not directly comparable or stated differently that the remarkable increase in the overall unemployment rate during the 1970s is due in part to the fact that some of the earlier hidden unemployment has become measurable. Also it is necessary to recognize that the reduced cyclical variation in participation of adult females may reflect changes in the composition of the female labor force. They are more educated and hold jobs requiring more skilled labor and permanent attachment to the labor market.