Unemployment Flows in Finland, 1969–95: A Time Series Analysis

Abstract

We adopt a flow approach to analyse Finnish unemployment experience during the last three decades. In addition to data on short‐term and total outflow and inflow rates from a relatively long period beginning in 1969, we also have data on duration‐specific outflow rates for the period 1984 I–96 II which encompasses the spectacular increase in unemployment in the early nineties. The empirical study shows that both the inflow and the outflow is mainly driven by variation in job opportunities. For a given vacancy‐unemployment ratio, the outflow rate has fallen because of changes in unemployment compensation, demographic structure and emigration. The outflow has been only marginally affected by long‐term unemployment. The results indicate that the beneficial effects of labour market policies on long‐term unemployment are to some extent counteracted by substitution effects.