When receiving unemployment benefits

Labour market policies play an important role in the general economic policy in all the Nordic countries. High employment and low unemployment ae not only important goals, but also prerequisites for the existence of the Nordic welfare states.

Compensation rates

The data show that the compensation rate for insured unemployed singles is considerably higher than for non-insured unemployed singles. However, in the lowest income group, the compensation rate is lower for insured unemployed singles than for non-insured unemployed individuals in the Faroe Islands. The reason for this is that for non-insured unemployed people, the benefit is a fixed amount that does not depend on previous income.

The level of the compensation rate for insured people depends first and foremost on the amount of the daily cash benefit in relation to previous income. For the lowest previous income levels, the compensation rate is highest in Norway for single persons and in the Faroe Islands for couples, but lowest in Iceland for both groups. In Iceland, a fixed daily cash benefit amount, irrespective of previous income, is payable for the first ten days, after which the amount payable is calculated based on previous income (up to a certain level) for a maximum of three months, followed by another fixed daily cash benefit amount. Compensation levels are also determined by the maximum amounts, of which the highest are in Norway – where, therefore, the compensation rates are highest for those with high previous incomes. In Finland, no upper limit is placed on the amount of daily cash benefits, but where income exceeds a certain level, the compensation rate must not exceed 20 per cent.

For families with children, the level of compensation depends on whether a child supplement is payable, as is the case in Finland and Norway. In addition, the amount of both housing benefits and charges payable for day-care institutions are adjusted in relation to income. This is important in relation to the level of compensation for both insured and non-insured people, and helps to ensure a high level of compensation for single parents. In Iceland, day-care charges are not adjusted according to income, but depend on labour market activity and marital status. Thus, there are lower charges for unemployed.

Unemployment benefits in general

When unemployment rises, it is due to either a general low demand in the economy, or the fact that the labour market is not functioning adequately; a phenomenon known as structural unemployment. Labour market policies in the Nordic countries are designed to help reduce structural unemployment by means of educational- or activation measures rather than by means of passive provisions for the unemployed.

Across the Nordic countries, there is considerable variation in the ways by which the labour market policies are designed and implemented with the concern for both active and passive measures.

In the Nordic countries, unemployment benefits are statutory benefits payable to persons who become unemployed. The benefits are payable as a compensation for the loss of income, and in order to support and maintain a reasonable standard of living in the event of job loss. However, the compensation level and payment period are designed to encourage unemployed persons to seek out and take up new employment. This way the benefit schemes have a labour market policy function. In the countries, the receipt of benefits entails obligations. Recipients must be available to take on work, must be active jobseekers, and must accept offers of activation and work.

In the Nordic countries, most people are entitled to cash benefits when they become unemployed. In the Faroe Islands and Norway, unemployment insurance is mandatory for waged workers. In Iceland, all waged workers and self-employed people have statutory unemployment insurance. In all three countries, unemployment benefits are administered by labour market institutions and certain requirements must be met in order to receive benefits. Those who fail to meet these requirements may be eligible for income-tested social security benefits. In all three countries, benefits are fully financed by employers’ social insurance contributions. The benefits to which non-insured individuals are entitled are usually lower than unemployment benefits. The criteria for qualifying for receiving daily unemployment benefits vary from country to country. Refer to the section on unemployment for more information on statistics and rules.

Disposable income

The event of unemployment has different effects on different types of families. For couples as one would expect, the event of unemployment for the adult with the lowest salary, seem to have a lower effect on the overall level of disposable income compared to singles. In fact, the level of disposable income is generally higher for couples without children, as the cost of childcare influence the level of income. The level of financial support for couples with children only seem to have a small effect on the disposable income, if any.

For singles without children the event of unemployment has a direct effect on the disposable income. The income level from unemployment benefits reaches a maximum in most countries, when the income level before unemployment are about AW75. This is most prominent when observing the disposable income for singles without children. The only exception is in Norway, where the maximum income level from unemployment is reached at the income level of AW100 before unemployment and in Finland, where the disposable level of income of unemployment seem to increase slightly with the increased level of income before the event of unemployment.

When single parents receive unemployment benefits, the disposable income decrease in most countries, as the financial support for childcare does not increase in the event of job loss. This is the general picture for all the Nordic countries except Norway. The highest level of disposable income is reached at the income level before unemployment of AW75 in Denmark, the Faroe Islands and Sweden. In Iceland and Norway, the highest level of disposable income is reached at the income level before unemployment of AW100.