Helsinki

Long-term unemployment at a record high, but light at the end of the tunnel

Unemployment in Helsinki 1987–2016

The rates of employment and unemployment in Helsinki have seen considerable variation between 1987 and 2016, the period examined in this article. Between two recessions, the city has witnessed a long period of upturn, during which the unemployment rate fell. The prolonged economic slump which began in 2008 has once again led to a difficult situation. It has had some worrying implications such as an increase in long-term unemployment, the consequences of youth unemployment and the employment opportunities of individuals with foreign backgrounds. At the end of 2016, the trend in unemployment has finally taken a turn for the better. However, long-term unemployment remains at a record high.

Over the past three decades, Finland has faced two severe economic recessions. The first of these, the recession of the early 1990s, was considered exceptionally severe for its time. The problem was viewed as the consequence of a combination of “bad policy and bad luck” (Honkapohja & Koskela 1999). After the boom period and full employment of the late 1980s, the economy experienced difficulties at the start of the 1990s. The main factors behind the ensuing depression were the fixed-rate policy of the Finnish markka combined with the collapse of the Soviet Union markets and more general economic downturn in other countries. The depression hit quickly and led to mass unemployment. The national unemployment rate rose to a level of over 20 per cent.

If the depression came on quickly, the subsequent upturn was equally sudden. Starting in 1994, economic activity and employment rates began to recover. The upswing was characterised primarily by the rise of the mobile phone industry, led by Nokia and its subcontractors, to become the third pillar of the Finnish economy alongside the metal and engineering industry and the forestry and paper industry. With the exception of the mini-recession at the start of the new millennium, favourable economic development continued all the way to 2008. The unemployment rate, however, never returned to the low level seen during the upturn of the late 1980s.

From the perspective of its background factors and duration, the current recession, which began in 2008, is of a different nature. The subprime crisis of the United States and the euro crisis provide a broader framework, which was combined with explanatory factors stemming from the internal structure of the Finnish economy. The problems and downfall of the Nokia cluster, difficulties faced by the paper industry and, lastly, the decline of trade with Russia, have all played a part in leading to the current recession. In terms of the unemployment rate, the level of 1993 has not been surpassed, but the situation has been very disconcerting in the past few years.

This article examines the long-term development of unemployment in Helsinki between 1987 and 2016. We analyse the structure of unemployment according to age groups and the duration of unemployment. Where relevant, the situation of Helsinki and the Helsinki Metropolitan Area is compared to the overall situation in Finland. We also highlight certain particular causes for concern related to the current situation. All figures presented in the article are based on information from the register-based employment statistics compiled by the Ministry of Employment and the Economy; the unemployment rate is also calculated based on the Ministry’s employment statistics (unemployed) and the register-based employment statistics compiled by Statistics Finland (labour force). In Finland, the official unemployment rate is calculated using data from sample-based workforce surveys conducted by Statistics Finland; this data does not, however, enable the examination of the structure of unemployment at the municipal level.

Economic climate and the development of unemployment in Helsinki in 1987–2016

The latter half of the 1980s was characterised by economic growth. The unemployment rate in Helsinki between 1987 and 1988 was at a rate of around two per cent (Figure 1). In the strongest year of the upswing, 1989, the proportion of unemployed people in the labour force in Helsinki was only 1.4 per cent, while the national unemployment rate was only 4.4 per cent. This means that in Helsinki, there were 3,800 unemployed jobseekers. However, the situation changed rapidly. Over the course of 1991, the number of unemployed persons grew to over 3.5 times greater than in the previous year, and the unemployment rate in Helsinki rose to 9.1 per cent. At that time, there were nearly 24,800 unemployed persons in Helsinki. In the following year alone, the number of unemployed rose to 39,300, with the unemployment rate reaching 14.6 per cent at the end of 1992. When the recession hit its deepest slump in 1993, the unemployment rate in Helsinki was 18.7 per cent, which translates to 49,400 unemployed jobseekers.

The number of unemployed persons fell briskly between 1994 and 2000. In late 2000, 8.3 per cent of the labour force was unemployed. In 2001, the economy was hit by a “mini-recession”, which is often connected to the bursting of the so-called IT bubble. However, this led to only a minor increase in unemployment. After the mini-recession, economic growth continued to be strong and the unemployment rate in Helsinki fell to the lowest level seen in the 2000s, 6.1 per cent, in 2008. The number of unemployed in Helsinki dropped at this time, on the eve of the global recession, to 19,200 individuals.

The subprime mortgage loan crisis that began in 2007 in the United States led to a broader financial crisis. The filing for bankruptcy of the investment bank Lehman Brothers in autumn 2008 can be seen as a symbol of this crisis. The US financial crisis also had an impact on the international economy. It led to the start of a recession, which also hit Finland. In 2009, the number of unemployed persons in Helsinki grew by 37 per cent compared to the previous year.  Finland reacted to the economic downturn through financial stimulus policy (Kuismanen & Spolander 2011).

The downturn appeared to be short-lived, with unemployment rates falling once again in 2010–2011. However, the euro crisis and structural problems in the Finnish national economy led to a new downturn. Since 2012, unemployment has been rising. In 2013, the unemployment rate in Helsinki rose to 10 per cent. This translates to a figure of 32,800 unemployed persons at the end of 2013. At the end of 2015, the number of unemployed reached 41,700. However, at the end of 2016, the growth in the unemployment rate appears to have finally ceased, with the number of unemployed was in fact one per cent lower than the year before.

Increasing persistence of unemployment

The increase of prolonged unemployment periods has begun to cause more and more concern in recent years. People who have been unemployed for at least one consecutive year are considered long-term unemployed. In a weakening climate, the rate of long-term unemployment does not begin to rise until one year later than the rate of unemployment. This was the case in both 1992 and 2010. By the end of 1992, the number of long-term unemployed had risen from just over 400 persons in the previous year to over 6,200.  In 2010, the number of long-term unemployed increased by 36 per cent compared to the previous year. The growth picked up speed in the subsequent years: in 2014, the number of persons who had been unemployed for over a year was 48 per cent higher than a year earlier. After that, however, the growth in the number of long-term unemployed has slowed down. In 2015, there were 30 per cent more long-term unemployed than in the previous year, while at the end of 2016, there were only 9 per cent more than a year prior.

The risk for long-term unemployment is higher among older unemployed individuals. They often have a very hard time finding employment, especially as the recession persists. Many people who lost their jobs in the 1990s did not manage to find new employment at all, with their unemployment not ending until they retired. This group included many people from the baby-boom generation, especially those born between 1945 and 1950, which can be seen in the large proportion of long-term unemployed in the overall unemployment rate even in the economically good years in the 2000s. As of the end of 2016, persons over 50 years of age made up around one third of all unemployed and nearly half of all long-term unemployed.

The number of long-term unemployed is even higher than it was in the mid-1990s. In December 2016, the number of long-term unemployed in Helsinki was 17,840, or as much as 43 per cent of all unemployed. In the year with the highest long-term unemployment rate in the 1990s, 1994, the number of long-term unemployed in Helsinki was 17,800.

The number of persons who have been unemployed for more than two years is growing faster than the overall number of long-term unemployed.  Of all unemployed persons in Helsinki, nearly one fifth have been unemployed for over two years. In December 2016, the average duration of unemployment in Helsinki was 67 weeks. In autumn 2009, the corresponding figure was 31 weeks.

The definition of structural unemployment

Total structural unemployed = end-of-month total number of long-term unemployed, repeatedly unemployed, those who have become unemployed after a labour market measure and those transferring from labour market services to another corresponding service.

Long-term unemployed are those continuously registered as unemployed jobseekers for at least one year.

The repeatedly unemployed have been registered as unemployed jobseekers for more than 12 months in the last 16 months. This excludes the aforementioned group of continuously long-term unemployed.

Persons who have remained unemployed after a labour market measure include those people who, over the past 12 months, have been employed, in a work practice/working life training programme, on a probationary period, in labour market training or coaching, working as a temporary replacement for an employee on leave, in an elective study programme or in work rehabilitation activities, whose placement has ended 3 months before the calculation date and who were registered as unemployed jobseekers on the calculation date. These persons are not included in the variables for the long-term or repeated unemployed.

Persons transferring from one service to another include those who have been employed, in a work practice/working life training programme, on a probationary period, in labour market training or coaching, working as a temporary replacement for an employee on leave, in an elective study programme or in work rehabilitation activities, who have been using the above-mentioned services over the past 16 months but whose placement has ended 3 months before the start of the service in effect on the calculation date. In addition, the person must have been registered as an unemployed jobseeker for more than 12 months or have been using the above-mentioned active services in the last 16 months.

The difficult-to-employ jobseekers

The Ministry of Economic Affairs and Employment uses the concept of structural employment to describe those who are difficult to employ. In addition to the long-term unemployed, this category includes the repeatedly unemployed, people who have remained unemployed after a labour market measure and people who have transferred from one labour market service to another. The category of long-term unemployed includes those people who have been continuously unemployed for over one year. The repeatedly unemployed are those people who have been unemployed for at least one year over the past 16 months, meaning their unemployment has been temporarily interrupted due to a period of employment, studies or another reason, but has continued soon after.

This analysis provides a deeper picture of the persistence of unemployment. Comparable statistical data on those who are difficult to employ is available starting from 2006 (Figure 3). In November of 2016, there were a total of 25,900 persons in Helsinki who are considered difficult to employ. The corresponding figure for autumn 2006 was nearly 10,000 fewer. Of all unemployed in Helsinki, the proportion of those difficult to employ in 2016 is as high as 64 per cent.

6 per cent of long-term unemployed are aged 50 years or more, whilst among the structurally unemployed their share is only 39 per cent. The difference can be explained by the fact that older unemployed persons have access to a narrower range of employment services or atypical employment relationships than young people have. When the subcategories of structural unemployment are examined by age group, it can be seen that over 80 per cent of long-term unemployed are over 50 years of age (Figure 4).

Thanks to the possibility of temporary employment, persons under 25 years of age are employed from time to time, and they are also more likely to participate in employment services; this can be seen in the high proportion of young people in the categories of repeatedly unemployed and unemployed after labour market services.

The number of persons in Helsinki receiving income support and/or general housing allowance has been growing for several years (City of Helsinki Urban Facts 2015). It is to be expected that with time, persistent unemployment will be reflected in increased experiences of poverty. When unemployment persists, there is also a risk of path dependency, in which persistent unemployment leads to a decrease in professional competence. This leads to even greater difficulty in finding employment and removes the incentive to apply for jobs. Because some persistent unemployment apparently also indicates permanent changes in occupational structure and changing demand for skills, labour market policy must be able to react to these changes. There may not be demand for skills that were previously sought after, even in an improved economic climate.

An increase in youth unemployment can have consequences spanning a person’s entire career. In this respect, the consequences of youth unemployment are an even more serious problem than that of unemployment among older people. Employment of the growing number of asylum seekers is also a significant challenge. Even before the events of autumn 2015, the unemployment rate among foreign nationals had grown faster than that of the other groups in the comparison (Figure 5).

The structural features of unemployment in Helsinki have been described above. Particularly noteworthy is the growth in long-term unemployment. The depression of the 1990s already demonstrated that even a strong upswing will not necessarily solve all unemployment-related problems. Along with the decrease in quality of life experienced by the unemployed, the increase in structural unemployment poses a significant problem for financing the operations of the public sector. Maintaining the Nordic welfare state requires a high employment rate (Kiander & Lönnqvist 2002). In addition, it must be recognised that the impact of economic growth on increased employment and decreased unemployment may be less significant than before due to factors such as changes in the structure of the labour market and technological development (Bank of Finland 2012).

Henrik Lönnqvist is Research Director at the City of Vantaa. Minna Salorinne is Researcher at City of Helsinki Urban Facts.

Sources of statistical data:

The unemployment data are based on the employment statistics of Ministry of Employment and the Economy. The data have been obtained from the StatFin database of Statistics Finland and the Toimiala Online information service of the MEE, as well as from a special order from City of Helsinki Urban Facts.

Literature:

Helsingin kaupungin tietokeskus [City of Helsinki Urban Facts]. Yleinen asumistuki Helsingissä 2014 [General housing allowance in Helsinki 2014]. Statistics 2015:3.

Honkapohja, Seppo & Koskela, Erkki (1999):  The Economic Crisis of the 1990s in Finland. Economic Policy, Vol. 14, pp. 401–436.

Kiander, Jaakko & Lönnqvist, Henrik (2002): Hyvinvointivaltio ja talouskasvu [The welfare state and economic growth], WSOY, Helsinki.

Kuismanen, Mika & Spolander, Mikko (2012): Finanssikriisi ja finanssipolitiikka Suomessa [The financial crisis and financial policy in Finland]. Kansantaloudellinen aikakauskirja, Vol. 108, pp. 69–80.

Suomen Pankki [The Bank of Finland] (2012): Talouden näkymät [Financial outlooks]. Euro & Talous, 5/2012.

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