150,000 unemployed have no incentive to work in Finland
LABOR SHORTAGE remains the main obstacle to the growth of small and medium-sized enterprises in Finland, according to Mika Malirantathe director of the Labor Institute for Economic Research (Labore).
Aki Kangasharjuthe managing director of Etla Economic Research, believes that the problem should be solved by increasing foreign labor and removing barriers to work, writes Helsingin Sanomat.
Etla calculated that about 150,000 unemployed people find themselves in an inactivity trap in Finland. The research institute defines the inactivity trap as a situation where taxes would eat up at least 75% of the additional income generated by returning to work. Kangasharju, however, acknowledged that people behave differently and the threshold does not apply to all unemployed workers.
“Some may find the job unattractive if the company takes half of the new income and others when the share is 90%. We will never be able to fully grasp how many people actually choose not to work for these reasons,” he recalled at a press conference held in Helsinki on Monday by Finance Finland.
Etla’s analysis suggests traps have become a slightly lesser problem since 2015.
Kangasharju and Maliranta attended the seminar to offer their thoughts on how to keep the country attractive as an investment destination.
Maliranta identified Denmark and Sweden as examples of the performance of the Finnish economy, recalling that the inactivity traps in the two countries are even higher than in Finland.
“If the inactivity traps are so important, you can think of how dizzying growth rates could be achieved in Denmark and Sweden if they eliminated these even worse inactivity traps,” he commented.
Kangasharju said the traps here might not be as high, but they caught more people than in Denmark and Sweden.
“Finland has a particularly high number of people in these traps, which may not be as high but are traps nonetheless. Our social benefits are so distributed also to high-income people,” he explained, pointing to a situation where childcare costs become a deterrent to work for an unemployed person with a family.
“The employment participation tax is close to a hundred and it’s not worth accepting work,” he said.
If Finland wants to accelerate economic growth, it should follow in Sweden’s footsteps, according to Kangasharju. Sweden has taken steps to reduce the tax burden on middle- and high-income earners.
“Fifteen percent of Finns find themselves in a situation where society values them negatively. Our taxation is already so tight that a relaxation would increase our tax revenues,” he argued, recalling that taxation can become an obstacle to advancing one’s career and inducing people to transfer their income abroad.
Etla estimated that up to 900,000 people in the country are already in an income trap, meaning taxes would absorb at least half of an increase in income.
Aleksi Teivainen – HT