 There Are Ways to Improve Work Incentives Without Increasing Income InequalityPäivi Puonti and Aki Kangasharju No 112, ETLA Brief from The Research Institute of the Finnish Economy Abstract: 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. Keywords: Incentive trap; Earnings related unemployment benefit; Income inequality (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:rif:briefs:112 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in ETLA Brief from The Research Institute of the Finnish Economy Contact information at EDIRC. |
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