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Keywords:

  • unemployment protection;
  • youth;
  • means-tested benefits;
  • poverty relief;
  • welfare state restructuring;
  • social assistance

Abstract

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

In this study, we investigated if there has been a displacement in the type and coverage of welfare services available for young unemployed adults in Finland, Norway and Sweden over the last two decades. This question is important because a number of studies have argued that the generous unemployment benefits and extensive labour market intervention found in the Nordic welfare states shield young people from the most severe consequences of economic inactivity. In this article, we instead show that during this period, less generous means-tested unemployment and social assistance benefits have become the most important form of income protection for young people. In evidence, earnings-related unemployment benefits now cover only 10 per cent of unemployed Swedes and Finns and 45 per cent of unemployed Norwegians aged 24 years or younger. This development marks a significant change in our understanding of unemployment protection for young people in Nordic countries.


Introduction

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

In general, young people in Europe are more vulnerable to unemployment than older age groups, not only in times of economic crises, but also in more prosperous times (OECD, 2012). The well-being, also in the long run, of unemployed young people therefore depends to a large degree on how the welfare states have designed their unemployment protection systems (Franzén & Kassman, 2005). Some observers suggest that the generous unemployment benefits and extensive labour market intervention found in Nordic countries shield young people from the most problematic consequences of economic inactivity (Furlong & Cartmel, 2003; Gangl, 2006).

Changes in the provision of social protection schemes for young people may aggravate the patterns of recurring unemployment, lower income and increase the risk of social exclusion (Gallie & Paugam, 2000; Mroz & Savage, 2001), poor physical health and heightened psychological distress (Carle & Julkunen, 1998; Hammarstrom & Janlert, 1997; Kieselback, 1988; Rantakeisu, 2002) found in the wake of youth inactivity. Thus, deteriorating unemployment protection may leave young people more vulnerable to the negative side-effects of economic hardship in both the short and long run.

There has been little focus on the link between policy changes and the development in coverage rate for the unemployment benefit in Finland and Norway (see Reiertsen & Årethun, 2007, for Norway). In Sweden, on the other hand, labour market authorities are publishing annual figures of the coverage rate for the unemployed. Its consequences for young people have also been discussed by social scientists (see Salonen, 2010, for focus on young people and Sjöberg, 2011, for a general account). Even though numbers are available for labour market authorities in all three countries, the recent development has not been analysed in a more comprehensive and systematic manner.

To throw new light on this matter, this article considers the developments in social protection for young adults in Finland, Norway and Sweden over the past 10–20 years. To do so, we examine whether poverty relief in place of unemployment protection in these countries has come to better characterise the economic safety net provided for young unemployed persons. More precisely, we ask to which extent means-tested benefits have replaced earnings-related unemployment benefits among unemployed young adults. Our discussion confines itself to policy change, thus omitting the potential impact of modifications in youth establishment patterns, education and labour market structure on unemployment protection for young people.

Background

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

We must judge the welfare state restructuring that took place in Finland and Sweden, and to a lesser extent Norway, during the 1990s against the background of the prevailing economic climate at the time (Kosonen, 2012; Scarpa, 2009). Both Sweden and Finland, for example, faced a severe recession at the beginning of the 1990s, whereas Norway was struck by a less critical economic downturn at the beginning of the decade (Drøpping, Hvinden, & Vik, 1999; Jonung, Kiander, & Vartia, 2009). In the mid-1990s, the unemployment rate soared to 9 per cent in Sweden and to 17 per cent in Finland (Scarpa, 2009). Norway, on the other hand, had a more stable unemployment rate, reaching a maximum level below 6 per cent (Marklund & Nordlund, 1999). All three countries subsequently experienced a strong upturn in the business cycle during the latter part of the decade. Against the backdrop of these developments, Timonen (2003) argued that Finland and Sweden make excellent cases for a study of what happens to institutional welfare states during a serious economic crisis at a time when globalisation is argued to make generous welfare states unsustainable. Conversely, Norway makes an excellent case for comparison, as it was not (unlike Finland and Sweden) included in the fuller economic and financial integration of the European Union during this time, and because the welfare state in Norway was under less economic pressure than was either Finland or Sweden. Another feature that makes these three countries particularly interesting to study is the differences in the way unemployment benefit is organised. While the Norwegian unemployment protection is mandatory, Finland and Sweden follow the so-called Ghent system (Sjöberg, 2011). This latter system is characterised by voluntary membership in unemployment insurance funds. According to Andersen (2012), even minor policy adjustments can result in far-reaching changes in the appearance and functioning of unemployment benefits organised within the Ghent system. Consequently, the potential for a shift from a mainly universalistic unemployment protection to a system that can be characterised as selectivistic is possible in Finland and Sweden without the institution of any major policy reforms.

Unemployment protection systems are products of the industrial era. Clegg and Clasen (2011) argue that many welfare states have adapted to the new challenges, several of which are described previously, by implementing ‘unemployment benefit homogenisation’. This expression characterises a common development in European welfare states where fewer unemployed people receive earnings-related benefits, which are in some cases replaced with flat-rate and means-tested benefits. Another aspect is the amalgamation of separate transfer programmes. However, benefit homogenisation does not necessarily mean the abolition of insurance-type protection altogether. Instead, it could mean that the earnings-related component loses some of its relevance within the unemployment scheme or that generous earnings-related benefits are restricted to a decreasing minority of the unemployed. An important consequence of unemployment benefit homogenisation, however, is the removal of the division between poverty relief and unemployment protection in terms of social insurance. This makes it particularly interesting to scrutinise whether such a development is taking place among young people in Nordic countries, including Finland, Norway and Sweden. Along the lines of this homogenisation thesis, we examine the coverage rate of earnings-related, flat-rate and means-tested social assistance benefits in these countries.

Methods

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

The aim of this study is to investigate the development in social protection for young unemployed adults in Finland, Norway and Sweden. For this purpose, we compiled age-specific unemployment and social assistance numbers for all three countries covering the last 10–20 years. The intent is merely to describe the aggregate social protection development for young people over time. Forthcoming publications from the project will address ‘causal’ regression-based in-depth analyses of economic marginalisation among young people.

All data were delivered by national unemployment services or collected from national statistical offices; some of the data are accessible to the public, and some had to be ordered specifically. The use of register-based data collected from official public sources ensures comparability between countries.

The Finnish social assistance data were compiled from the official social assistance statistics of the National Institute for Health and Welfare (Social Assistance, 2010). The unemployment data were made available to us by the Social Insurance Institution of Finland and Supervisory Authority of Finland (Statistical Yearbook on Unemployment Protection in Finland 2011).

The Norwegian data stemmed from two sources: the population based longitudinal database FD-Trygd and unemployment records owned by the Norwegian Labour and Welfare Services. Statistics Norway's FD-Trygd database contains, among others, full information on all social assistance spells in Norway from the year 1992. To ensure comparability over time and between countries, the Department of Statistics at the Norwegian Labour and Welfare Services helped us compile the unemployment statistics.

The Swedish social assistance data were made available to us by The National Board of Health and Welfare, Department of Statistics and Analysis. The social assistance statistics were paired with population statistics from Statistics Sweden. The unemployment statistics were made available to us by the Swedish Unemployment Insurance Board's unit of analysis.

Although several persons helped us collect these data, the authors are responsible for the interpretations made here. Although the data are comparable between countries, it is important to keep in mind when reading the numbers that different institutional characteristics and economic conditions might complicate the direct comparison of benefit recipients across countries. Many of these differences are described in more detail in the country descriptions.

Income protection for the unemployed in Finland, Norway and Sweden

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

Although universal welfare benefits and services are considered a hallmark of the Nordic welfare states, unemployment benefits are based on the principle that paid work qualifies one for better benefits (Timonen, 2003). The welfare system restructuring that took place during the 1990s – which led to the situation where unemployment benefits became more dependent on employment history and contributions – reinforced these characteristics. It has thus become more difficult for the unemployed in Nordic welfare states to qualify for at least some earnings-related benefits (Scarpa, 2009; Timonen, 2003).

Despite many similarities, the structuring of unemployment protection differs across Finland, Norway and Sweden. The Norwegian unemployment protection is mandatory, while the Finns and Swedes follow the so-called Ghent system. This latter system is characterised by voluntary membership in unemployment insurance funds that are subsidised by the state (Andersen, 2012). Consequently, where Norway has a one-tier unemployment benefit system, Sweden has a two-tier system and Finland a three-tier system. In addition to earnings-related benefits, Finland and Sweden have a flat-rate benefit for qualified unemployed people without membership in an unemployment fund. Finland is also the only one of the three countries with a third form of means-tested unemployment support. In Finland and Sweden, unemployment insurance is voluntary, but the uninsured unemployed with the required work history are entitled to basic benefits (Nososco, 2008). In addition, the means-tested labour market subsidy in Finland is for the uninsured unemployed with no previous work history or for those who have received a basic benefit over the maximum time. Benefit levels for earnings-related unemployment insurance are quite generous across all three countries. For a single average wage earner, the compensation rate is 53 per cent in Finland, 63 per cent in Norway and 48 per cent in Sweden (Nososco, 2011).

As a rule, in all three countries, social assistance is the last resort for those not entitled to regular unemployment protection or that need economic support in addition to the unemployment benefit. In general, social assistance programmes are last-resort forms of means-tested economic assistance that is available to all citizens as a guaranteed minimum level of subsistence. Social assistance often includes a basic cash benefit for daily living expenses and housing costs. It also includes possible supplements to cover the special needs of households and case-specific payments for occasional needs. This is the case throughout Finland, Norway and Sweden. The extensive social security system available to most Nordic citizens left only those with severe social and economic problems on social assistance (Kuivalainen & Nelson, 2012).

Some of the earlier attempts to classify countries in clusters based on national social assistance characteristics correspond with the well-known welfare typologies of Esping-Andersen (Kuivalainen, 2004). More recent attempts to classify countries have shown that changes in Nordic social assistance are promoting convergence with other Western welfare states (Kuivalainen & Nelson, 2012). In terms of benefit generosity and poverty outcomes, these three countries have moved closer to international patterns (Kuivalainen & Nelson, 2012). All three countries have made stronger attempts to tie work obligations to social assistance receipt (Lødemel & Trickey, 2001; Scarpa, 2009). The use of sanctions in case of non-compliance with activation requirements in Finland and Sweden has been interpreted as a movement in the direction of a more discretionary character (Bergmark, 2003; Keskitalo, 2007).

The absolute benefit levels have grown in all three countries over the last two decades (Kuivalainen & Nelson, 2012). According to these numbers, Finland and Sweden have had the slowest increase. However, looking at relative numbers that are adjusted according to wage development, Norway shows more of a stable path, while the generosity in Finland and Sweden has decreased sharply. At the beginning of the 1990s, the latter two countries had far higher relative coverage rates than Norway. By 2007, the three countries all had fairly similar rates at between 45 and 50 per cent of median income (Kuivalainen & Nelson, 2012).

Income protection for unemployed youth in Finland

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

There have been several cutbacks and tightening of the eligibility criteria for unemployment benefits in Finland since the early 1990s, with the primary target group being young jobseekers (Aho & Virjo, 2003). A particularly major reform took place in 1994 with the introduction of a means-tested labour market subsidy for unemployed people without a work history and those who had received the basic unemployment benefit over the maximum time (500 workdays). The reform was an answer to challenges caused by the fact that more and more of the unemployed either lacked any work history, had been only temporarily employed or had lost their entitlement to benefits due to prolonged periods of unemployment (Timonen, 2003). The labour market subsidy can be considered an additional last-resort safety net, as it began to serve many of the same claimants that relied on social assistance in Sweden and Norway (Scarpa, 2009). With this reform, the Finnish unemployment protection system effectively turned into a three-tier system. The reform also included a shortening of the time of professional immunity, a widening of the geographic area in which accepting an offered job was obligatory and a tightening of the sanctions for refusing to accept an offered job (Duell, Grubb, & Singh, 2009).

The earnings-related unemployment benefit in Finland is now only for those unemployed people who were members of an unemployment fund for at least 8 months preceding unemployment and who meet the prescribed conditions regarding previous work history. Qualified beneficiaries must have worked at least 18 hours per week for at least 8 months during the 28 months preceding the unemployment. The maximum period of earnings-related unemployment benefit is 500 workdays, after which the unemployed can apply for the basic unemployment benefit (KELA, 2008).

The unemployed people who meet the conditions regarding previous work history but are not members of an unemployment fund (or who have received the earnings-related benefit over the maximum time) can apply for a basic daily allowance. While the basic benefit includes annual adjustments for inflation, its level has fallen substantially against earnings (and the earnings-related benefit) over the last two decades. Partly because of this, there was a 100-euro increase in the basic unemployment benefit in the beginning of year 2012 [Perusturvan riittävyyden arviointiraportti (Basic Benefits Adequacy Evaluation), 2011]. The basic benefit is a flat-rate sum amounting to 674 euros per month gross, or about 564 euros after tax. The maximum payment period for the basic unemployment benefit is 500 workdays (KELA, 2012).

Unemployed jobseekers in Finland without a work history (or those who have exceeded the maximum benefit period) can apply for the means-tested labour market subsidy, payable over an indefinite period. The full labour market subsidy is the same as the basic unemployment benefit (674 euros gross), but access is means tested. Young unemployed people living with their parents or a working spouse are usually not eligible for this benefit. In addition, unemployed people under 25 years of age and without a vocational degree are obliged to apply for a student place in the biannual national joint application for studies. Subsequently, thousands of young adults are denied this subsidy each year because of their failure to receive or refusal to seek a student place (Kananen, 2012). This leaves social assistance as the only available financial support for this particular group of young adults in Finland.

Unlike the labour market subsidy, social assistance in Finland is comprehensive and not targeted at special (age) groups, with persons aged over 18 years living with their parents regarded as living in their own household in respect of social assistance benefits (Social Assistance Act, 1997). However, if the recipient is living with his or her parents, the usual assumption is that there is no housing cost, and the recipient is then only eligible for daily living expenses. For adults living with their parents, the basic benefit is 70 per cent of the single person's basic benefits, amounting to 337 euros per month (net). The basic benefit is inflation adjusted annually (Ministry of Social Affairs and Health, 2012). The labour market subsidy and the basic unemployment benefit are higher than the basic social assistance benefit. Hence, a person receiving full unemployment benefit is not usually eligible for social assistance without housing costs. In addition, if the unemployment benefit is withheld because of the recipient's refusal to accept an offered job or training, the basic benefit can be reduced by between 20 and 40 per cent.

Figures 1 and 2 depict the coverage rates of the earnings-related daily allowance, flat-rate basic allowance and the means-tested labour market subsidy for the unemployed in Finland for the period 1988–2008 for persons aged 25 and over and 24 and under. The earnings-related basic daily allowance coverage went from being the most important benefit for those over 24, with 55 per cent coverage to 45 per cent over a period of two decades. Thus, by the end of the review period, means-tested unemployment benefits were slightly more important (in terms of coverage) than earnings-related benefits. While the latter has been relatively less important for young people in Finland over the whole period, the coverage rate went from a quite substantial 25 per cent to less than 10 per cent for the youngest age group.

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Figure 1. Unemployment benefits coverage for unemployed persons aged 25 years and older, Finland, 1988–2008.

Source: Social Insurance Institution of Finland and Supervisory Authority of Finland.

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Figure 2. Unemployment benefits coverage for unemployed persons younger than 25 years, Finland, 1988–2008.

Source: Social Insurance Institution of Finland and Supervisory Authority of Finland.

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By comparison, the flat-rate basic daily allowance lost most of its importance for both age groups over the period 1988–1996. Clearly, the means-tested labour market subsidy quickly replaced the flat-rate basic unemployment benefit in a de facto sense during this period. Following its introduction in 1994, coverage of this benefit increased from zero to almost 50 per cent of the unemployed in the 25 years and above age group. It thus became the most important benefit for this age group. We can see a similar development for the 24 years and under age group, but with a level exceeding 80 per cent by the end of 2008. Hence, by 2008, the means-tested unemployment benefit had taken over as the most important form of unemployment protection for all age groups in Finland.

The modern social assistance system came into effect in Finland during the economic downturn of the early 1990s. Perhaps for this reason, no further major reform was carried out during the 1990s, with the exception of changes to reduce the basic amount if the recipient refused to take a job that was offered or sanctions against those refusing to participate in an activation programme (1998). Major reform in the social assistance system instead took place at the beginning of the 2000s, when active unemployment policy and unemployment offices were combined, both in legislation as well as physically in municipalities. Reform took place under the Rehabilitative Work Experience Act, where social services and unemployment offices were obligated to engage in closer cooperation. This invoked the successive tightening of work testing and sanctions. Together with minor reforms in 1997, 2005 and 2011, which further tightened means testing, social assistance in Finland now contains much stricter work testing, sanctions and means testing than it did 15–20 years ago (Kananen, 2012).

Figure 3 depicts the number of social assistance recipients as a percentage of each age group. As shown, the share of social assistance recipients increased sharply for all age groups during the early and mid-1990s recession. The increase in social assistance recipients was especially strong among 20 to 24-year-olds during the recession, where the proportion of social assistance recipients increased from 15 to 30 per cent. It has been suggested that the greater share of beneficiaries in Finland compared with Sweden and Norway was caused by the use of social assistance as a top-up to unemployment benefits (Kuivalainen & Nelson, 2012). That the economic crisis hit the employment of young adults hardest partly explains the sharp increase in the number of young adults receiving social assistance. However, the labour market subsidy reform also explains part of this increase. During this time, means-tested labour market support was rejected for a substantial number of young unemployed people, largely because of their refusal to seek vocational training or because the benefit was not paid following the income testing of parents and spouses (Heikkilä & Lahti, 2001).

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Figure 3. Social assistance recipients in Finland, percentage of age group, 1991–2006.

Source: National Institute for Health and Welfare.

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Income protection for young unemployed people in Norway

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

There have been several changes to unemployment benefit eligibility over the last two decades, characterised by three key features: (i) a tightening of eligibility; (ii) shorter benefit periods; and (iii) stricter behavioural requirements. Benefit levels, however, have remained unchanged.

Beginning in 1994, there was a tightening in the requirement for a reduction in working hours. In order to qualify for an unemployment benefit before 1994, a 20 per cent reduction in working time was required (St. meld. nr. 9, 2006–2007). After 1994, this became a 40 per cent reduction, increasing to 50 per cent in 2003 (Reiertsen & Årethun, 2007). After 1997, participants in a labour market programme no longer qualified for unemployment benefits (Torp, 1999). Meanwhile, in 2003 the lowest income level that qualified for unemployment benefits was increased. Before 2003, the minimum annual income level was set to approximately 8,300 euros, but following the change in criteria, the level was set to approximately 10,000 euros (St. meld. nr. 9, 2006–2007).

Over the same period, there have been several changes to the maximum duration of unemployment payments. In 1997, the maximum duration fell from 160 to 156 weeks. In 2003, even shorter benefit periods meant that recipients with an annual income level above approximately 13,300 euros had their maximum benefit period reduced from 3 to 2 years, while recipients on lower annual incomes had their maximum duration reduced from 18 months to 1 year (Reiertsen & Årethun, 2007).

Behavioural requirements reinforced some of these changes. Increasingly, claimants have had to demonstrate active jobseeking for continued benefit rights. In 2003, the requirements made explicit in a government regulation implied that in order to qualify for assistance, an applicant must have lost his/her job involuntarily, accept a job if offered one, agree to relocate if required, and participate in an active labour market programme if offered a place (Andreassen, 2003). The stated intentions of these changes were to curtail recruitment to unemployment benefits and to force and stimulate claimants to find work faster (Andreassen, 2003).

It is likely that young people were more affected by these eligibility enforcements, whereas older employees were more strongly influenced by time limits, as they were and are more frequently long-term unemployed (Reiertsen & Årethun, 2007). However, none of the policy changes targeted a particular age group.

Figure 4 depicts the coverage rate of the Norwegian earnings-related unemployment benefit for unemployed people aged 25 years and older. As shown, we can observe similar developments to those in Finland, with the share of those with rights to earnings-related benefits decreasing over the last two decades. Even so, nearly half of the unemployed in this age group had earned rights to unemployment benefits during the historic low of 2008.

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Figure 4. Unemployment benefits coverage for unemployed persons aged 25 years and older, Norway, 1989–2010.

Source: The Norwegian Labour and Welfare Services.

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As shown in Figure 5, the coverage rate for young unemployed people was already substantially lower than that for older unemployed people in the late 1980s. By 2010, it had decreased to roughly 45 per cent. During the historic low in 2008, approximately 30 per cent of this age group had earned rights to unemployment benefits. Although the downward trend originated from different starting points for the two age groups, the relative decrease has been approximately the same for both.

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Figure 5. Unemployment benefits coverage for unemployed persons younger than 25 years, Norway, 1989–2010.

Source: The Norwegian Labour and Welfare Services.

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In Norway, the unemployed who do not qualify for unemployment benefits have means-tested social assistance as the only available alternative. Social assistance is the responsibility of the municipalities, with eligibility based on the principles of domicile and subsidiarity (Lødemel & Trickey, 2001). The minimum age for individuals to claim social assistance is 18 years. According to law, social assistance should ensure a sufficient or proper level of subsistence. While state guidelines exist, they are of a non-binding nature. During the 2000s, there were several adjustments to the recommended benefit level, but these did not keep up with the general improvement in living standards. The justification for this under-adjustment is that ‘work shall pay’. The Social Service Act that was enacted in 1991 stated that local authorities could require recipients to carry out work for the municipality in exchange for benefits. We could view this as the introduction of the ‘work approach’ to social assistance (Lødemel & Trickey, 2001). Several experiments in the organisation of programmes and tailoring of measures took place in the 2000s (Lorentzen & Dahl, 2005).

In contrast to Finland and Sweden, the effect of the financial crisis at the beginning of the 1990s in Norway was relatively mild, with neither the level of unemployment nor the number of social assistance recipients reaching the levels seen in the other two countries. In fact, at the bottom of the financial downturn in 1993, less than 11 per cent (Figure 6) of the 20–24 year age group in Norway received social assistance, which was about one-third of the level in Finland at the time.

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Figure 6. Social assistance recipients in Norway, percentage of age group, 1989–2008.

Source: Statistics Norway's FD-Trygd database.

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Income protection for young unemployed people in Sweden

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

An expanding universal welfare state characterised the Swedish post-war era, but during the first half of the 1990s a severe recession in the Swedish economy led to cutbacks in many welfare systems. Among the consequences were lowered remuneration and increasing demands for entitlement to various social security benefits and unemployment benefits. Because of generally less stable workforce affiliation, young people were especially hard hit. In the 1990s, there was no other age group in Sweden that increased their welfare dependency as much as did young adults [Socialstyrelsen (Swedish National Board of Health and Welfare), 2001].

The maximum duration of benefits has been 300 days, but extension is possible through participation in activation programmes (Sjöberg, 2011). Persons under 20 years of age are not entitled to the basic unemployment benefit. There have been several changes to unemployment insurance in Sweden during the last two decades, with unemployment compensation rates falling from 90 to 80 per cent in 1993 and to 75 per cent in 1996, but returning to 80 per cent in 1997 (Sjöberg, 2011). However, because of income limitations, more than 87 per cent of all benefit claimants who previously worked full-time received less than 80 per cent of their previous income in unemployment compensation (Sjöberg, 2011). For those entitled only to the flat-rate basic insurance component, the maximum compensation can be as low as 320 krona (33 euros) daily (Salonen, 2010).

The issue of unemployment insurance in Sweden has been the subject of intense debate as the Swedish government has implemented several substantial cutbacks since 2006. In 2007, the government instituted policies that dramatically increased premiums for the unemployment funds. As a consequence, over the period 2006–2008, 498,000 persons left unemployment insurance funds, of which 40 per cent were young people aged between 16 and 34 years (Kjellberg, 2010). One implication of this policy change is that over the short period from 2007 to 2008, one in four members aged between 16 and 24 years left the unemployment insurance system.

That year also saw the abolishment of the opportunity to earn rights to unemployment benefits by studying and an increase in the requirement for previous work experience (Andersen, 2012). Until 2007, students with a college or university degree qualified for basic unemployment benefits if they were members of an unemployment fund. Consequently, nearly 40,000 unemployed former students lost their unemployment benefits.

Figure 7 displays the commensurately decreasing coverage rate of earnings-related unemployment benefit for unemployed people aged over 24 years. Unfortunately, our Swedish data only cover the period after 1999. Thus, we have no information covering the economic downturn in the mid-1990s. It is clear, however, that the Swedish coverage rate in 1999 was higher than that in either Finland or Norway at that time. Over the period from 2004 to 2010, the coverage rate of earnings-related unemployment benefits in Sweden went from approximately 75 per cent to 50 per cent (a lower level than in Norway).

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Figure 7. Unemployment benefits coverage for unemployed persons aged 25 years and older, Sweden, 1999–2010.

Source: The Swedish Unemployment Insurance board's unit of analysis.

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In 1999, the percentage of unemployed young people qualifying for the basic allowance or the earnings-related unemployment benefit was 45 per cent (Figure 8). By the end of the period, the total coverage rate for young people had fallen to just 10 per cent. Most of this decline took place over the relatively short period from 2004 to 2010. The combined developments in earnings-related unemployment benefits and the basic allowance led to the situation where by 2010 almost 90 per cent of unemployed people below the age of 25 years were uncompensated by unemployment benefits.

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Figure 8. Unemployment benefits coverage for unemployed persons younger than 25 years, Sweden, 1999–2009.

Source: The Swedish Unemployment Insurance board's unit of analysis.

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Complementing the developments in unemployment protection, the means-tested social assistance benefit has become more central in providing basic living expenses for young people without jobs. The increase in the share of young people in need of social assistance began during the 1990s welfare crisis. Almost a third of all young adults received social assistance before the age of 24 during the years of the welfare crisis (Salonen, 2000). An increasing number of young social assistance recipients during this recession resulted from the various cutbacks and policy changes aimed at reducing costs by implementing more restrictive criteria.

The responsibilities and obligations of young people thus became more pronounced than in previous legal interpretations of the right to social assistance (Johansson, 2001). The Supreme Administrative Court also laid down a strategy placing an emphasis on the responsibilities of parents as financial providers for their adult children. The attitude towards young people applying for social assistance was also characterised as being more selective, and reinforcing the principle of means testing. An amendment in the Social Services Act in 1998 also enabled municipalities to require participation in activation programmes as a criterion for entitlement to social assistance (Scarpa, 2009). This applied only to citizens under 25 years of age.

Nonetheless, Figure 9 indicates that the number of social assistance recipients aged 20–24 years increased sharply during the financial crisis of the mid-1990s. The percentage of young people (20–24 years of age) in Sweden receiving social assistance was lower than in Finland during the financial crisis in the mid-1990s, but higher than in Norway. However, as in Finland and Norway, the share of older recipients in Sweden remained remarkably stable throughout the period.

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Figure 9. Social assistance recipients in Sweden, percentage of age group, 1990–2008.

Source: The National Board of Health and Welfare, Department of Statistics and Analysis and population statistics from Statistics Sweden.

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Discussion

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

Our goal in this article has been to describe the developments in social protection for young unemployed people in Finland, Norway and Sweden over the last two decades, with a focus on policy development. We asked whether poverty relief better characterised the economic safety net for young unemployed persons during this period than did earnings-related unemployment insurance.

Analysts of the changes in unemployment protection systems across Europe have suggested the term ‘unemployment benefit homogenisation’ to describe recent developments (Clegg & Clasen, 2011). This involves the substitution of flat-rate and means-tested benefits for earnings-related benefits, the restriction of generous earnings-related benefits to a minority of unemployed people and the amalgamation of hitherto separate unemployment transfer programmes.

We found that the three Nordic countries in our study exhibit some of the characteristics of benefit homogenisation. The analysis shows first that there has been a general movement towards fewer unemployed people qualifying for earnings-related benefits over the last two decades in all three countries. At the start of our observation period in 1989, the Norwegian earnings-related unemployment benefit had an average coverage rate of 74 per cent. By 2010, it had fallen to 60 per cent. Thus, the coverage rate fell by almost 20 per cent. Sweden, on the other hand, began with an average coverage rate of 66 per cent in 1999, which had fallen to 49 per cent by 2009. This indicates a decline of more than 25 per cent. Finland started from a much lower level than the other two countries. In 1988, the coverage rate of earnings-related unemployment benefits was 48 per cent. By 2008, it had fallen to 41 per cent, nearly 15 per cent lower than at the beginning of the period. We were unable, however, to detect any indication of the amalgamation of separate unemployment transfer programmes. On the contrary, Finland introduced a third means-tested pillar to its unemployment protection system in 1994.

According to Clegg and Clasen (2011), flat-rate unemployment benefits have assumed increasing importance in Western countries. Based on the share of recipients, our calculations show the opposite; in neither Finland nor Sweden have we observed higher shares of flat-rate unemployment benefits for any of the age groups over the years we studied. In support of Clegg and Clasen's claim, however, means-tested benefits have an increasingly important function for the economic safety of young people. Our social assistance statistics have demonstrated that in times of economic uncertainty, in all three countries the share of young recipients increases dramatically, while the share of older recipients remains fairly stable. By adding a means-tested component to unemployment insurance in 1994, Finland has introduced a new logic to a system that for decades relied on previous earnings. This is now the most important economic support for all unemployed Finns, but even more so for those under the age of 25 years. Thus, in numerical terms, Finnish unemployment insurance is now more a system of selective rather than earnings-related benefits.

Neither Sweden nor Norway has introduced means-tested components to their respective unemployment insurance systems. Accordingly, for the time being, the structure of unemployment protection remains intact in both Norway and Sweden, even though the composition of the clientele has changed dramatically over less than a decade in the latter. Currently, only about 10 per cent of unemployed Swedes under 25 years of age receive unemployment benefits as defined, with the remainder dependent on means-tested social assistance or parental support. Thus, in strictly numerical terms, Swedish unemployment insurance is now also more of a selective benefits system for the young unemployed. This, to a certain extent, also holds for Norway, where 55 per cent of the youngest unemployed have to rely on means-tested social assistance for economic support. Even so, the direction of developments in Norway is less clear than in the other two countries. Echoing Andersen's (2012) analysis of the Ghent system, minor policy adjustments in Sweden have resulted, in less than a decade, in far-reaching changes in the appearance and functioning of unemployment benefits for young unemployed Swedes. In Finland, on the other hand, we have seen a similar development in young people's economic safety net. However, because of the introduction of a new pillar in the unemployment insurance, the changes cannot be described as minor.

Our focus has been on policy development which we think is crucial to understand the time trends. As demonstrated, the dramatic compositional changes of the unemployed in both Sweden and Finland took place over a relatively short period of 5 years. It is not likely that long-term structural changes in the labour market and the educational system can explain these recent developments in the entitlement to social security found among Nordic youth.

Kuivalainen and Nelson (2012) have shown that the poverty rate among recipients of means-tested benefits in the Nordic countries increased over the years from 1990 to 2005. This suggests that more young people will face poverty if or when they become unemployed. There are a number of negative implications and consequences of such a development. It is at odds with a basic principle of the Nordic model – to eradicate (or minimise) poverty. It contradicts the idea of social investment, prevention and early intervention that has pertained to the Nordic model. Last but not least, youth unemployment, and in particular unemployment combined with poverty, tends to have long-term detrimental consequences for health, longevity, labour force participation and life chances in general (Gangl, 2006). In a situation where the number of unemployed people is low, this may not be a major problem. However, in an economic recession, the short- and long-term effects for the youths that are hit may be severe.

Acknowledgements

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References

We are grateful to the Joint Committee for Nordic Research Councils in the Humanities and Social Sciences for funding this comparative research project. We thank Jessica Ibrant at the Swedish Unemployment Insurance board for giving us access to Swedish unemployment statistics. Thanks also to Helena Rudander at the National Board of Health and Welfare, Department for Statistics and Analysis for helping us obtain access to the Swedish social assistance data. We are also grateful to Sille Ohrem Naper at the Norwegian Labour and Welfare Services Department of Statistics for compiling and delivering unemployment data for Norway, and to Statistics Norway for delivering the register data from the FD-Trygd database. Lastly, we would like to thank the Social Insurance Institution of Finland and the Ministry on Social Affairs and Health for help in providing unemployment protection statistics broken down into specific age groups for our study.

References

  1. Top of page
  2. Abstract
  3. Introduction
  4. Background
  5. Methods
  6. Income protection for the unemployed in Finland, Norway and Sweden
  7. Income protection for unemployed youth in Finland
  8. Income protection for young unemployed people in Norway
  9. Income protection for young unemployed people in Sweden
  10. Discussion
  11. Acknowledgements
  12. References
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