Unemployment and early retirements of the aged workers in Finland

This paper contains an empirical analysis of gross job flows in the context of the great depression of the early 1990s in Finland. The job flows are characterised in terms of employee age and education. The outflow of workers from employment occurs mainly through unemployment, unemployment pensions or disability pensions. The purpose is to examine how the pressures for change, caused by depression and restructuring during the 90s, were reflected in the use of the aged labour force. The study shows that the aged workers had a considerably higher propensity to loose their jobs than Finnish employees in general. The unemployment pensioners and disability pensioners tend to have shorter educational histories than the Finnish workers in general. The withdrawal into unemployment and retirement as a whole does not depend on firm size. Firms instead use the method which is least costly. Firms’ share of pension payments depend on the firm size and the chosen pension scheme. Therefore, large firms channel their older workers to unemployment or unemployment pension rather than to disability pension. We find that withdrawal of aged workers is rather weakly related to the long run productivity and profitability of the firm. Instead, we find persistence in high job destruction, especially in manufacturing, that may relate to skill-biased-technical change.