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Back to work Finland: Improving the re-employment prospects of displaced workers



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Back to work Finland: Improving the re-employment prospects of displaced workers

  1. 1. Ann Vourc’h, OECD Directorate for Employment, Labour and Social Affairs Merja Kauhanen, Labour Institute for Economic Research Back to Work: Finland Improving the re-employment prospects of displaced workers Seminar Ministry of Economic Affairs and Employment Helsinki, 24 November 2016
  2. 2. 1. Background: OECD review on displaced workers 2. The labour market situation of displaced workers in Finland 3. Policies to assist displaced workers: strengths, weaknesses and possible ways forward - Prevention and early intervention - Income support and re-employment assistance 4. Main recommendations Outline of the presentation 2
  3. 3. Phase 1: Analytical report focussing on comparable statistics on job displacement and its consequences in Employment Outlook 2013 Phase 2: Nine country case studies: Korea, Canada, Japan, Sweden, Australia, the United States, Denmark, Finland, and New Zealand Phase 3: A synthesis to be published in the OECD Employment Outlook 2017 OECD policy reviews on displaced workers Definition of displacement: Workers are defined as displaced if they are dismissed from jobs, with one or more years of job tenure, because of economic reasons such as plant closings, business downturns and changes in technology 3
  5. 5.  2000-12, 5.4% of employees with at least one year of tenure lost their job each year for economic reasons o This rose to 7.3% in 2009 due to the global financial crisis o It receded only very slowly in 2010 and 2011 and slightly more in 2012, in line with the subdued labour market performance  Some workers are particularly vulnerable to displacement: o Short-tenure workers o Youth o Tertiary sectors o Crisis specific effects: older workers, manufacturing Job displacement in Finland: key facts 5
  6. 6. Displacement rates in Finland higher than in other OECD countries… Percentage of employees aged 20-64 who are displaced from one year to the next, averages 2003-2008 and 2009-2010 Source: OECD (2016), Back to work Finland: Improving the re-employment prospects of displaced workers, Paris: OECD Publishing. 6 0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8 Japan NewZealand France Canada Russian Federation United States Australia Korea Germany Sweden Denmark Portugal United Kingdom . . %% 2003-08 2009-10 f010 J a… N e… F r… C a… R u… U n… A u… K o… G e… S w… D e… P o… U n… . . 2003-08 2009-10 Self-defined displacement Firm-identified displacement Finland
  7. 7. …but so are re-employment rates, reflecting Finland’s flexible labour market Re-employment rates in Finland and other selected OECD countries as a % of all displaced workers, averages 2003-2008 and 2009-2010 Source: OECD (2016), Back to work Finland: Improving the re-employment prospects of displaced workers, Paris: OECD Publishing. 7 0 20 40 60 80 100 0 20 40 60 80 100 France Korea Canada Japan Russian Federation United States NewZealand Australia Portugal United Kingdom Germany Denmark United States Sweden . . . %% Re-employed within one year (2003-08) Re-employed within two years (2003-08) Re-employed within one year (2009-10) Self-defined displacement Firm-identified displacement A. Re-employment rates for displaced workers, Finland and other selected OECD countries Finland
  8. 8. Scarce information on quality of new jobs suggests no large fall on average  Information on job quality in FLEED is very scarce  Since the GFC, re-employment rates of long-tenure workers, as well as of workers in the manufacturing and construction sectors and trade workers or machine operators worsened  Earning losses after displacement appear limited, but higher and more persistent for older workers 8
  9. 9. Some Finnish regions suffer more from displacement than others  Displacement rates are very high in Uusimaa and Pirkanmaa, and high in Kymenlaakso, Satakunta, South West Finland and North Ostrobothnia  Not problematic if re-employment rates are also high, but this is not the case in South-West Finland and to a lesser extent Satakunta and Kymen-Laakso.  Other regions have relatively low displacement rates but also very low re-employment rates: Kainuu, North Karelia and Lapland  Internal migration plays a very limited role in reducing these regional disparities 9
  11. 11.  Employment protection for permanent workers close to OECD average: o Relatively high protection against individual dismissal o Low additional requirements in case of collective dismissal  Priority re-employment rule often circumvented through negotiated packages  High labour market dynamics suggest that EPL requirements are not restrictive in practice: workers are more vulnerable to job loss than in other countries, but correspondingly more likely to find a new job Labour law in Finland protects workers without hampering labour market dynamism 11
  12. 12. The temporary layoff scheme prevents layoffs but probably not only unnecessary ones  Attractive option for employers: easy eligibility, work- sharing and conditionality requirements and, above all, no direct cost  Take-up is high, and despite a reduction after the crisis remains much higher than before  Regional use of the scheme reflects economic dynamism and sectoral specialisation of regions, as well as climatic conditions (seasonality); also shows positive correlation between regional participation in the temporary layoff scheme and the unemployment rate => Probably some overuse (deadweight and displacement effects) and, thus, delayed adjustment and job search 12
  13. 13.  Change security effectively provides information to displaced workers in large firms  But does not provide much effective employment services or training before worker registers as a jobseeker (in particular individual interviews and counselling)  The effectiveness of Abrupt structural change cannot be assessed (invest in any case in firms rather than workers)  Lack of early intervention is problematic for less qualified workers in less dynamic sectors  New training obligation agreed may increase early support, but remains to be defined. Early intervention to assist displaced workers is under-resourced 13
  14. 14. The three-tier unemployment benefit system protects workers relatively effectively  At 75%, the coverage rate of displaced workers by unemployment benefits is relatively high in international comparison.  Unemployment benefit payment duration is long compared with most other OECD countries, in the range of the other Nordic countries.  Net replacement rate in the first year is in the top third of OECD countries, and in the top 20 % over a five year period.  In 2015, 50% of all recipients received earnings-related unemployment benefits, 38.2 % labour market subsidy and 11.7% basic unemployment allowance  The low level of basic unemployment allowance and means-tested labour market subsidy are reflected in relatively high poverty rates among unemployed persons (about 40% over the last decade)
  15. 15. Forthcoming benefit reform will reduce generosity but does not solve unemployment tunnel problem for older workers  Unemployed people are entitled to extended unemployment benefits until the age of 65 if they turn 60 before the end of their 500-day unemployment benefit entitlement  Research shows that this contributes to the relatively low employment (and reemployment) rate of older (displaced) workers  Recent refrom has shifted the age limit but with forthcoming pension reform the tunnel is getting longer again  Future reform will reduce the duration of earnings-related benefits to 400/300 days and remove the benefit top-ups for those unemployed with a long work history (over 20 years) but leaves entitlements for those over age 58 untouched  The social partners agreed to reassess the situation in mid-2019
  16. 16. Spending on active labour market programmes is very high but not targetted enough  Finland spends more on ALMP than most OECD countries: ALMP spending was around 1% of GDP in 2014, the third- highest share after Denmark and Sweden  More emphasis on training measures within ALMP spending than in other countries, especially for displaced workers  But little is known about the effectiveness of training in general and even more so for displaced workers  Older and long-term unemployed jobseekers are highly underrepresented on active labour market measures (15% and 10% activation rate against 25% overall) =>Weaker re-employment assistance and weaker chances to move out of unemployment
  17. 17. But PES is underfunded and shortage of operational resources weakens effectiveness  The budget to run the PES is small in Finland relative to the budget available for active labour market programmes  The number unemployed per employment counsellor has doubled in Finland during the past decade Source: OECD (2016), Back to work Finland: Improving the re-employment prospects of displaced workers, Paris: OECD Publishing.
  18. 18. Activation rate keeps falling while the number of long-term unemployed keeps increasing Source: OECD (2016), Back to work Finland: Improving the re-employment prospects of displaced workers, Paris: OECD Publishing.
  20. 20. Raising the effectiveness of labour market policy  Shift PES resources to lower the caseworker-customer caseload and enable more and earlier face-to-face contact  Address underrepresentation in active labour market programmes of groups struggling to return to employment  long-term unemployed, older and low-skilled displaced workers  Enhance the activation stance of labour market policy  Ensure quick registration with the PES  Tighten job-search requirements  Gradually remove special unemployment benefit rules for older workers  Raise the impact of the training system  Provide more steering to the education sector  Introduce a system of recognition of skills acquired on the job  Switch towards results-based funding of services
  21. 21.  To avoid packages delaying job search, draw a tighter link between access to unemployment benefit and registration with employment services  Make employers bear part of the cost of the temporary layoff scheme to reduce possible overuse and the associated delay in adjustment and job search  Increase resources for the Change security process to reach also small businesses and provide more real help early when needed (including individual counselling and training)  Increase the involvement of the social partners to improve the number of immediate job-to-job transitions prior to dismissal, as is done in other Nordic countries, especially Sweden Preventing job losses and intervening early 21
  22. 22.  Important to be able to track displaced workers to evaluate effects and effectiveness of policies (such as temporary layoff scheme, change security process, abrupt structural change)  Invest in rigorous, systematic evaluation of training programmes and employment interventions, including their effectiveness for displaced workers  E.g. by setting aside a certain share of total programme costs for the assessment of employment outcomes  Research on effect of displacement on job quality needed, by linking FLEED with other data sets including information on type of contracts, wages, etc. More evaluation needed 22
  23. 23. For further information: 23 OECD Directorate for Employment, Labour and Social Affairs: OECD work on displaced workers: OECD Employment Outlook: @OECD_Social Contact:

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