Lifting of social security fees brings few new jobs, if any
Lower contributions did have positive effect on wages
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The temporary lifting of the requirement to pay employers’ social security fees has apparently not significantly contributed to the creation of more jobs.
Researchers Ossi Korkeamäki of the Government Institute for Economic Research (VATT) and Roope Uusitalo of the Labour Institute for Economic Research studied the effect of such a move at the request of five government ministries.
The study was conducted during the three-year trial period in Finnish Lapland and in island municipalities.
"The impact on employment, if any, was small", says Ossi Korkeamäki.
He says that there may have been a slight positive effect in Finnish Lapland, but that the change is not statistically significant.
Decreasing employers’ costs has often been offered as a way to fight unemployment. However, in the areas covered by the research, the move did not seem to encourage companies to hire more employees.
The cut in social security contributions did have a positive effect on employees’ take-home pay. In areas where the employer contributions were lifted, wages grew about two percentage points faster than in other areas.
"This is what usually happens when the costs of labour come down. If demand for labour grows, it raises wages", Korkeamäki says.
Employers’ social security payments were lifted on an experimental basis for three years in 14 municipalities in Finnish Lapland and in the archipelago area.
Most of the employers involved in the experiment were in areas of Finnish Lapland with high unemployment. The researchers say that if the same kind of measures were implemented in areas where the employment situation is better, the results would probably be even less impressive.
"The increase in demand for labour would probably lead to greater wage hikes and a smaller impact on employment", the researchers conclude.
The three-year trial does not necessarily give any indication of what the long-term effect of cutting social security payments would be.
"It is not worthwhile for companies to invest in new equipment, for instance, because the cost of labour is lower for three years. This means that the whole impact on labour will not emerge in three years", Korkeamäki says.
The results of the study were disappointing to Jarkko Soikkeli, the head economist at the Federation of Finnish Enterprises.
"It was not a surprise that some of the impact of the cuts went into wages. However, the finding that the cuts did not seem to have a significant impact on employment is a weaker result than what the previous studies in Finland had indicated", Soikkeli says.
Helsingin Sanomat
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| 10.6.2005 - TODAY |
 Lifting of social security fees brings few new jobs, if any
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