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Researcher: Wage subsidies have little impact on employment

The government is channelling millions into wage subsidies that Etla says have negligible impact on employment.

Jasmin Vilén on kokkina Kavalton tilalla, jossa järjestetän muun muassa pitopalvelua. Hän jatkaa yrityksessä oppisopimuskoulutuksella palkkatukijakson jälkeen.
Jasmin Vilén was taken on as an apprentice at a catering firm after her subsidised trial period ended. Image: Toni Määttä / Yle

Economic think-tank Etla says state-sponsored wage subsidies designed for employers to recruit job seekers don't really boost employment. The government has outlined wage subsidies as a key tool for raising Finland's employment level to 75 percent, a goal which has been seen as challenging given the current slow rate of economic growth.

Finland's TE employment offices can grant wage subsidies to employers to help cover the costs of taking on an unemployed job seeker. The subsidy aims to advance the employment of job seekers who have shortcomings in their professional skills, or suffer from an injury or illness that make them less attractive to potential employers.

"It’s like giving a new recruit a long job interview," said catering entrepreneur Taija Kavalto. "The new employee doesn’t have to have all the required skills to get the job—it's an opportunity for them to show their willingness to learn."

Story continues after photo.

Jasmin Vilén on kokkina Kavalton tilalla, jossa järjestetän muun muassa pitopalvelua. Hän jatkaa yrityksessä oppisopimuskoulutuksella palkkatukijakson jälkeen. Kuvassa oikealla pitopalvelun yrittäjä Taija Kavalto.
Jasmin Vilén (L) and employer Taija Kavalto (R) plan an upcoming event. Image: Toni Määttä / Yle

Prime Minister Antti Rinne's government has highlighted the wage subsidy system as a key measure for raising Finland's employment level to 75 percent. The state currently spends some 250 million euros on the programme annually, with an additional 18 million euros now earmarked for the scheme. The state decided to provide an additional cash injection for the programme even though Finnish firms have left some 150 million euros in wage subsidies on the table. Many companies have found that applying for wage subsidies is laborious compared to the related benefit.

Business owners have criticised the programme as overly bureaucratic, which is why the government said it plans to simplify the scheme and launch an online matchmaking service for employers and job seekers.

No quick fix

Antti Kauhanen of the research institute of the Finnish Economy (Etla) told Yle that subsidising wages is not the silver bullet the government wants it to be.

"The effects have not been substantial. We are talking about a few more additional months of employment in a year. Wage subsidies have no impact in the public sector or among NGOs," he said.

Private sector employers use less than half of all issued pay subsidies, according to the Ministry of Economic Affairs and Employment. Most subsidised employees find positions with the state, municipality and different types of associations.

In Kauhanen’s opinion, the wage subsidy scheme is more of a social impact tool—interrupting long periods of unemployment—rather than guiding people into private sector jobs.

At the moment TE offices can cover between 30 and 100 percent of a job seeker's wage costs, with the maximum subsidy paid to an employer totalling 1,400 euros.

In the past decade, Kavalto’s catering business has taken on five recruits through the wage subsidy scheme—three of whom continued on as regular employees once their subsidies ran out.

She said she never recruited anyone through the scheme with the intention of replacing them with another subsidised job seeker after the subsidy period ended.

"We’ve recruited people with the goal of working with them in the future," she said.

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