--- title: "There Are Ways to Improve Work Incentives Without Increasing Income Inequality" authors: - name: "Puonti, Päivi" url: "https://www.etla.fi/?post_type=person&p=72076" - name: "Kangasharju, Aki" url: "https://www.etla.fi/henkilot/kangasharju-aki/" sameAs: - "https://twitter.com/AkiKangasharju" date_published: "2022-08-09" series: "ETLA Muistio - ETLA Brief" series_number: "112" issn: - "2323-2463" jel_codes: - "J20" - "H20" - "H55" language: "fi" publisher: "ETLA Economic Research" pdf_url: "https://www.etla.fi/wp-content/uploads/ETLA-Muistio-Brief-112.pdf" identifier: "https://www.etla.fi/julkaisut/id/ETLA-Muistio---ETLA-Brief-112" abstract_translations: en: "The Finnish unemployment system is inefficient. The earnings-related unemployment allowance unnecessarily lengthens the duration of unemployment spells. Longer unemployment spells increase income differences compared to a situation where a larger share of the population earned their living at paid work. This is because the prolongation of the unemployment spell means lower income for a longer period. Longer unemployment spells are also likely to contribute negatively to the quality of post-unemployment jobs. In this Brief, we sketch a reform that improves the work incentives of the unemployed with low employment barriers. The reform consists of shortening the duration of the earnings-related unemployment allowance from the current 400 days to a maximum of 200–250 days (9–12 months) and using the savings to support the employment of the people with the highest employment barriers. As a result, the unemployed entitled to the earnings-related unemployment allowance return to work more quickly, while long term unemployment decreases, and so the reform does not increase income inequality." --- # There Are Ways to Improve Work Incentives Without Increasing Income Inequality **Published:** 2022-08-09 **Categories:** Promemoria **URL:** https://www.etla.fi/sv/publikationer/promemoria/tyonteon-kannustimia-voi-parantaa-tuloeroja-kasvattamatta/ #### Abstract The Finnish unemployment system is inefficient. The earnings-related unemployment allowance unnecessarily lengthens the duration of unemployment spells. Longer unemployment spells increase income differences compared to a situation where a larger share of the population earned their living at paid work. This is because the prolongation of the unemployment spell means lower income for a longer period. Longer unemployment spells are also likely to contribute negatively to the quality of post-unemployment jobs. In this Brief, we sketch a reform that improves the work incentives of the unemployed with low employment barriers. The reform consists of shortening the duration of the earnings-related unemployment allowance from the current 400 days to a maximum of 200–250 days (9–12 months) and using the savings to support the employment of the people with the highest employment barriers. As a result, the unemployed entitled to the earnings-related unemployment allowance return to work more quickly, while long term unemployment decreases, and so the reform does not increase income inequality. --- ## Additional Information **Kirjoittajat:** Puonti, Päivi - Kangasharju, Aki **Publication Research:** No **Kansikuva:** https://www.etla.fi/wp-content/uploads/etla-muistio-brief-112-kansi.jpg **Lataa Pdf:** https://www.etla.fi/wp-content/uploads/ETLA-Muistio-Brief-112.pdf **Key Words:** Incentive trap, Earnings related unemployment benefit, Income inequality **Jel:** J20, H20, H55 **Paivays:** 09.08.2022 **Sivuja:** 10 **Kieli:** fi **Sarja:** ETLA Muistio - ETLA Brief **Sarja Nro:** 112 **Issn:** 2323-2463 **Saatavuus:** 2 ## Bibliographic metadata (JSON-LD) ```json { "@context": "https://schema.org", "@type": "ScholarlyArticle", "@id": "https://www.etla.fi/julkaisut/id/ETLA-Muistio---ETLA-Brief-112", "headline": "There Are Ways to Improve Work Incentives Without Increasing Income Inequality", "inLanguage": "fi", "publisher": { "@type": "Organization", "name": "ETLA Economic Research", "url": "https://www.etla.fi", "logo": { "@type": "ImageObject", "url": "https://www.etla.fi/wp-content/uploads/logo-etla_logo.svg" } }, "datePublished": "2022-08-09T00:00:00+00:00", "author": [ { "@type": "Person", "name": "Puonti, Päivi", "url": "https://www.etla.fi/?post_type=person&p=72076" }, { "@type": "Person", "name": "Kangasharju, Aki", "url": "https://www.etla.fi/henkilot/kangasharju-aki/", "sameAs": [ "https://twitter.com/AkiKangasharju" ] } ], "abstract": "", "keywords": [ { "@type": "DefinedTerm", "name": "Incentive trap", "@language": "en" }, { "@type": "DefinedTerm", "name": "Earnings related unemployment benefit", "@language": "en" }, { "@type": "DefinedTerm", "name": "Income inequality", "@language": "en" } ], "isPartOf": { "@type": "PublicationIssue", "issueNumber": "112", "isPartOf": { "@type": "Periodical", "name": "ETLA Muistio - ETLA Brief", "issn": "2323-2463" } }, "mainEntityOfPage": "https://www.etla.fi/sv/publikationer/promemoria/tyonteon-kannustimia-voi-parantaa-tuloeroja-kasvattamatta/", "url": "https://www.etla.fi/sv/publikationer/promemoria/tyonteon-kannustimia-voi-parantaa-tuloeroja-kasvattamatta/", "hasPart": { "@type": "CreativeWork", "inLanguage": "en", "text": "The Finnish unemployment system is inefficient. The earnings-related unemployment allowance unnecessarily lengthens the duration of unemployment spells. Longer unemployment spells increase income differences compared to a situation where a larger share of the population earned their living at paid work. This is because the prolongation of the unemployment spell means lower income for a longer period. Longer unemployment spells are also likely to contribute negatively to the quality of post-unemployment jobs. In this Brief, we sketch a reform that improves the work incentives of the unemployed with low employment barriers. The reform consists of shortening the duration of the earnings-related unemployment allowance from the current 400 days to a maximum of 200–250 days (9–12 months) and using the savings to support the employment of the people with the highest employment barriers. 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