Ann Vourc’h, OECD Directorate for Employment, Labour and Social AffairsMerja Kauhanen, Labour Institute for Economic Research

Back to Work: FinlandImproving the re-employment prospects of displaced workers Seminar

Ministry of Economic Affairs and EmploymentHelsinki, 24 November 2016

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

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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

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THE LABOUR MARKET SITUATION OF DISPLACED WORKERS

IN FINLAND

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 crisiso 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 workerso Youtho Tertiary sectors o Crisis specific effects: older workers, manufacturing

Job displacement in Finland: key facts

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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

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45

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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…

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2003-08 2009-10

Self-defined displacement Firm-identified displacement

Finl

and

…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

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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

Finl

and

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

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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

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POLICIES TO ASSIST DISPLACED WORKERS: STRENGTHS, WEAKNESSES AND POSSIBLE WAYS FORWARD

Employment protection for permanent workers close to OECD average:

o Relatively high protection against individual dismissalo 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

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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 costÞ 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

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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

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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)

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

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

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.

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.

MAIN RECOMMENDATIONS

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

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

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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

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For further information:

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OECD Directorate for Employment, Labour and Social Affairs: www.oecd.org/elsOECD work on displaced workers: http://www.oecd.org/els/emp/displaced-workers.htmOECD Employment Outlook: www.oecd.org/employment/outlook

@OECD_Social

Contact: christopher.prinz@oecd.org