Finland Is Falling Behind Other Nordic Countries in Employing People in Vulnerable Labour Market Positions
Peppi Saikku & Merita Mesiäislehto
Active labour market policy is often seen as a hallmark of the Nordic welfare model, and Finland has typically followed the example set by other Nordic countries in its development. The upcoming transfer of responsibility for organising employment services to municipalities in 2025 is largely inspired by Denmark, which decentralised its employment services in the early 2000s. The previous Finnish government’s “Nordic labour market service model” increased the number of job search discussions and job-seeking obligations. The short-lived reform involving Työkanava Ltd, a state-owned company aimed at employing people with partial work ability, was modelled after the Swedish Samhall concept. The current government’s plan to phase unemployment benefits is also influenced by the Danish model.
However, when it comes to supporting people in vulnerable labour market positions, Finland has taken a stricter and more individual-responsibility-focused path than its Nordic neighbours in terms of recognising diverse service needs and pathways to employment (van Gerven et al. 2022). Traditionally, those in vulnerable labour market positions include NEET youth (not in employment, education, or training), people with partial work ability, immigrants, and people over the age of 55.
While other Nordic countries have sought to improve labour market participation by making social protection more flexible, in Finland, financial incentives for work have primarily meant lowering benefit levels and tightening sanctions. This approach is reflected in recent changes to unemployment benefits and proposed amendments to social assistance. The underlying idea is to increase unemployed individuals’ motivation to leave social security by reducing its generosity.
Barriers to employment are complex
A recently completed Nordic Council of Ministers–funded project, How to increase labour market participation among vulnerable groups?, explored policy solutions in the Nordic countries and provided concrete recommendations for decision-making (Højbjerre et al. 2025). The project was conducted by Danish HBS Economics and VIVE in collaboration with the University of Bergen, the University of Iceland, Stockholm University, and the Finnish Institute for Health and Welfare (THL).
There are approximately 2.5 million people in vulnerable labour market positions in the Nordic countries who are trying to find their way into employment. The project’s findings highlighted that no single solution fits all: effective labour market policy requires a holistic approach. This means considering individual characteristics, financial incentives and motivation, employer behaviour and labour market dynamics, as well as the functioning of public services.
All Nordic countries face similar challenges in promoting employment. These include a lack of evidence on effective employment measures and employer hesitancy to hire people in vulnerable labour market positions. However, some of the project’s recommendations appear to conflict with recent reforms in Finland. This divergence is visible in how people in vulnerable positions are perceived and in what kinds of measures are believed to support their employment.
Motivation is not created by financial incentives alone
Evidence shows that financial sanctions and benefit cuts may work for those who already have the work ability, skills, and experience needed in the labour market. For people in vulnerable positions, however, it is crucial that incentives also support small-scale employment. In Denmark, for example, income from limited work (2–10 hours per week) is disregarded when calculating social benefits, which encourages participation. Nearly half of the individuals engaging in such minor work transitioned into full-time employment within two years. In contrast, Finland has abolished the unemployment benefit exemption threshold, weakening the financial incentive to accept short-term jobs — even though a direct transition to full-time work is not possible for many, and never will be for some.
Motivation is not created by financial incentives alone. The project’s recommendations emphasise the importance of trust and autonomy in increasing motivation for those for whom employment is particularly difficult. Actions such as co-developing services and peer group support can help. In Sweden and Denmark, NEET youth have been given the opportunity to choose the services they want to use for employment support, with a set budget and the help of a caseworker. The approach is based on the idea that every individual is respected, and their capabilities are trusted.
A long-term relationship between a jobseeker and a dedicated caseworker is also crucial. This allows for individual employment barriers to be identified and addressed. In a trial in Hjørring, Denmark, client-to-staff ratios were reduced to around 35–40 clients per caseworker. This resulted in increased employment and transitions out of benefits. In Finland, client numbers per employment counsellor are significantly higher, and ongoing cost-cutting measures do not promise improvement. Nevertheless, the importance of services is repeatedly emphasised in the context of social security cuts.
Traditionally, Finland has followed other Nordic countries in its active labour market policy, but this direction appears to be shifting. Denmark’s upcoming refors on employment measures seeks to increase autonomy and trust for both the unemployed and the professionals supporting them. Meanwhile, Finland is moving toward tighter regulation, increased obligations, and benefit reductions. Research and experiences from other countries suggest a different path for people in vulnerable labour market positions: employment is supported by trust, individual solutions, and the opportunity to progress in small steps to the labour market.
Blog authors
Peppi Saikku works as a Research Manager at the Finnish Institute for Health and Welfare (THL). She was the responsible Finnish country expert in the Nordic Council of Ministers-funded research project How to increase labour market participation among vulnerable groups? (2023-2025). Her research interests include activation policies for the unemployed, particularly from the perspectives of multi-level governance and service delivery.
Merita Mesiäislehto works as a Research Manager at the Finnish Institute for Health and Welfare and is also Adjunct Professor of Social and Public Policy at the University of Helsinki. She served as Finland’s national expert in the research project “How to increase labour market participation among vulnerable groups?” (2023–2025), funded by the Nordic Council of Ministers. In addition, she led the research project “Services, benefits, and labour market participation of people with reduced work capacity” (2022–2024), funded by Finland’s Sustainable Growth Programme. The project produced knowledge on the links between work capacity and labour market participation, as well as the structural conditions of the service system, particularly from the perspective of people with reduced work capacity.
References
van Gerven M, Mesiäislehto M, Saikku P, Ollonqvist J, Malava T, Tuominen N. (2022) [in Finnish]. Eri poluilla työllisyyteen: Suomen sosiaaliturvajärjestelmän erityispiirteet ja ongelmakohdat kansainvälisessä vertailussa. Publications of the Government’s analysis, assessment and research activities 2022:51
Højbjerre A, Jakobsen V, Thuesen F, Witt Rosenberg A, Lang Thomsen R, Stubkjær L, Celine Hardonk S, Einarsdóttir M, Korpi T, Saikku P, Mesiäislehto M. (2025). Increasing employment among vulnerable groups – Summary of insights and recommendations for the Nordic countries: Toward a more inclusive labour market in the Nordics 5. TemaNord 2025:533
The point about Denmark’s decentralised employment model inspiring Finland’s reforms is worth sitting with for a moment. Because Denmark’s approach did not simply transfer administrative responsibility downward — it was built alongside very active investment in case management capacity at the local level. That investment is the part that tends to get quietly dropped when other countries borrow the structural idea.
One thing I have been thinking about lately: when we look at how younger people outside standard employment fare in Denmark versus Finland, the gap is not only about services or incentives — it is about what local offices are actually equipped to do on day one. Decentralisation without that capacity is just a reshuffling of the same frustration to a different address.
The authors mention that motivation is not created by financial incentives alone, which is correct, but perhaps understated. Social connection to a workplace, even a marginal or part-time one, matters enormously — especially for people who have been outside the labour market long enough that the routine itself has eroded.
I do wonder whether the 2025 municipal transfer in Finland had any serious pre-condition requirements around staffing and local expertise, or whether the political appetite was simply to move fast and hope the capacity followed. Does the research here have any early signal on that question?