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Professor: Failing to join an unemployment fund is "the stupidest thing you could do in Finland"

Every employee in Finland pays for income-linked benefits, but you need to join an unemployment fund to get them. 

Ihminen seisoo ikkunan ääressä
In Finland people can claim unemployment benefit if they are laid off temporarily. Image: Seppo Sarkkinen / Yle

The coronavirus crisis has prompted a huge increase in furloughs in Finland, with nearly 200,000 people laid off from work temporarily by early May.

There is still a big risk that many of those people could face permanent job losses this year. While furloughed, workers are able to claim unemployment benefit.

It's a difficult situation for anyone, and furloughed workers in Finland are divided into two groups:

  • Those who get less than a thousand euros a month in basic unemployment benefit and labour market support

  • The second group that receives hundreds or even thousands of euros more than that in income-linked unemployment benefit

It does not pay to be in the first group if you can possibly avoid it. Income-linked benefits can only be claimed if you have a long enough work history and you are a member of an unemployment fund.

Even those who do not qualify for income-linked benefits if they are furloughed or unemployed have to contribute to most of the cost, as unemployment funds themselves only pay for a small part of the cost.

The graph below shows where the money comes from

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Income-linked unemployment benefit
Image: Samuli Huttunen / Yle

The largest part of the cost of income-linked unemployment benefits is paid out of compulsory unemployment insurance payments which come out of every pay packet in Finland and are paid by both employee and employer--regardless of whether or not the employee is in an unemployment fund.

Only a small part of the income-linked benefit is paid for out of unemployment funds' membership fees.

The taxpayer, on the other hand, funds a decent chunk of both income-linked and basic unemployment benefits.

Even if you don't read on to the end of this article, it pays to remember one thing: Every employee pays for income-linked unemployment benefits, but only members of unemployment funds receive them.

Unemployment funds are run by trade unions and other organisations, and you can choose a fund that does not require membership of a union.

Our All Points North podcast took a deeper dive into labour market issues. You can listen via this embedded player, Yle Areena, Spotify, iTunes or your normal pod player using the RSS feed.

Story continues after audio

Audio: Yle News

"You pay almost all of the costs but don't get the benefits"

It is estimated that around 15 percent of the Finnish workforce is, for one reason or another, not a member of these funds.

Petri Böckerman of Jyväskylä University suspects that many of them are not sure how the system works.

Some might also decide the cost is not worth it. If wages are low, ten or twenty euros a month can seem like big money. Even so, Böckerman says it is not worth saving on this particular outgoing.

"The stupidest possible choice you can make in Finland, is to remain outside this system," said Böckerman.

"You pay nearly all of the costs, but you don't receive the income-linked benefits because you did not join an unemployment fund."

According to Böckerman's report, part-time and temporary workers are often left outside the scope of unemployment funds, despite having a higher risk of unemployment. Researchers have found that the building trade, retail and restaurant workers are also at higher risk of not joining an unemployment fund.

"Young people are also more likely to be outside the scope of unemployment funds," said Böckerman.

The qualifying periods required to get income-linked benefits are not so onerous as potential members might imagine.

Summer work, part-time jobs and short stints in the workforce can all count towards the qualifying period.

The conditions in full are:

  • six months in employment while paying unemployment fund dues during the previous 28 months

  • a minimum of 18 hours' work per week during that period

  • Pay must be consistent with the sector-specific minimum laid down in the applicable collective agreement.

The time in which the six months were worked can be extended if an applicant has done military service, has been in full-time education or has taken parental leave. A calculator is available on the Kela website.

Corona crisis pushes youth into funds

Has the spike in furloughs prompted by the coronavirus crisis sparked a rush to join funds among the young? It seems to have had an effect.

Yle asked unemployment funds about their membership applications this year, and some reported the average age of new members had dropped in 2020.

  • The public sector union JHL said that more than one in three new members in the first four months of this year were aged under 30. In the same period last year young people were around a quarter of new members.

  • The highly-educated workers' fund KOKO says that 56 percent of new members at the start of the year were aged under 30 — some ten percentage points up on last year.

  • The sales and marketing union fund MMA says that 28 percent of new members are aged under 30. Last year that share was 28 percent.

  • The non-union aligned YTK general fund said that the average age of new members had dropped two years at the start of the year.

Not all funds have seen such a shift. The transport sector fund told Yle that they have not noticed a surge in applications, and the average age of applicants is no different than before.

The service sector fund said that it had seen membership increase but the average age had not changed.

"Fairer" system not on the way

Is it fair that everyone pays but only some get the benefit? Mauri Kotamäki, chief economist at the Finnish Chambers of Commerce, suggested two years ago that all employees should be eligible for income-linked benefits.

That suggestion was supported most by the Blue Reform grouping, which split off from the Finns Party but won no seats at the last election.

Antti Palola, chair of the STTK white-collar trade union confederation, says that his organisation supports the current system.

He points out that you do not have to be a union member to qualify for income-linked benefits, as there are independent unemployment funds too, but concedes that those less familiar with the Finnish system might fall through the gaps.

"Especially the younger people are not familiar with the existing system," said Palola.

"That is a question of education. We should begin education about working life in schools, in basic and upper secondary education. It is also the responsibility of the government and the authorities to give that information."

Böckerman has suggested a model that would see young people automatically enrolled in a state-backed fund if they did not join a different one.

Rapid changes to the current system are not, however, in prospect. So Böckerman urges everyone to take care of their unemployment insurance according to the current system.

"I guess that the majority of young people do not know the Finnish system," said Böckerman. "On the other hand a 20-year-old does not necessarily know how to evaluate their risk of ending up unemployed.

"A lot of people have been able to think that there would always be work in the restaurant trade, and therefore it does not make sense to pay ten euros a month."

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