How to Cope with Labour Market Policy Tools in Economic Downturn: Finnish Evidence

Abstract

This paper discusses the Finnish experiences of Active Labour Market Policy (ALMP) across the economic cycle, especially in economic downturn. Cuts in unemployment spell duration have been the main factors to contribute in decreasing the unemployment in the recent years. Subsidised employment programmes have clearly a stronger countercyclical character than Labour Market Training programmes. Evidence on effectiveness of LMP states that employment services are of high quality and have positive effectiveness, the main LMP programmes have usually positive, but relatively small effectiveness with the exception of public sector employment programmes which have poor effectiveness. The employment obligations of the late 1980s and too high a volume of LMP programmes in the recession of the 1990s are examples of bad lessons. On the other hand, a more coherent LMP strategy with emphasis on the dynamics and prevention-oriented policy is a good lesson as is also the strategy to prepare for the ageing and scarcity of the labour force. LMP is not originally developed for economic downturn, but it can help to create a more employment-friendly economic policy by taking care of the functioning of the labour market and the availability of the labour when demand for it recovers. In downturn, the volume of LMP can be increased to create more dynamics to unemployment, but the selectivity should not be destroyed.

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