Cash benefits on unemployment

One trait common to all the Nordic countries is that labour market policies play an important role in general economic policy. High employment and low unemployment are not only important goals, but prerequisites for the Nordic welfare states.

When unemployment rises, it is due to either generally low demand in the economy, or the fact that the labour market is not functioning adequately – a phenomenon known as structural unemployment. Nordic labour market policies are designed to help reduce structural unemployment by means of active measures rather than passive provision for the unemployed.  However, there is considerable variation in the ways in which the individual countries have designed their labour market initiatives concerning both active (employment measures, etc.) and passive measures (unemployment benefits, etc.). In all the Nordic countries, unemployment benefits are statutory benefits payable to people who become unemployed.

These benefits are payable as compensation for lost income and help to maintain a reasonable standard of living for those who have lost their jobs. However, the compensation level and the limited payment period are also designed to encourage unemployed people to seek out and take up new employment. In other words, the benefit schemes also have a labour market policy function.

In all 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 all the Nordic countries, most people are entitled to cash benefits when they become unemployed. In the Faroe Islands and Norway, unemployment insurance is compulsory 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 to receive benefits. The eligibility criteria for daily cash benefits from unemployment insurance funds vary from country to country.

Insured individuals may be awarded daily cash benefits financed by insured employees, the state, and to a limited extent by employers. The unemployment benefits are administered by municipal jobcentres.

Qualifying for daily cash benefits

One year’s membership of an unemployment fund is required. The first time a fulltime insured member applies for benefits, he/she must have worked as an employee for 1 924 hours (corresponding to 52 weeks of full-time employment) within the past three years prior to being made unemployed or must have spent a similar amount of time running his/her own business. A part-time insured member must have worked as an employee for 1 258 hours.
The benefit period is two years out of a period of three years. Members are entitled to a new period of unemployment benefits when they have accumulated 1 924 hours of new employment or have been self-employed for a significant period equivalent to approximately a year’s work within the last three years. A part-time insured member must have accumulated another 1 258 hours of new employment within the last three years. Graduates are entitled to daily cash benefits at a lower rate if they join an unemployment fund within 14 days of graduation.

Self-employed people and others may take out voluntary insurance. Unemployment benefits are administered by a fund financed equally by the employer and employee with 1 per cent of payroll costs and earned income, respectively.

Qualifying for daily cash benefits

Unemployment benefits are based on average earnings over the preceding 12 months. As such, no membership or period of employment is required. The total benefit period is 648 days over three years, after which there is no entitlement to unemployment benefits for the next 24 months. Employees in the fishing industry working on land are subject to special conditions – and, in special cases, are paid unemployment benefits in the event of temporary unemployment. For example, one scheme entitles fishermen to unemployment benefits if boats with fishing licences are laid up for repairs.

Unemployment benefits consist of a basic amount (Basic Unemployment Allowance) and a benefit based on previous income (Earnings-related Unemployment Allowance). The unemployment insurance funds pay the earnings-related allowance, while the Social Insurance Institution pays the basic unemployment allowance.
Non-insured people in Finland, as well as people who have received the earnings-related allowance or the basic unemployment allowance for the maximum period, are entitled to what is known as Labour Market Support. This benefit is income-based, but generally the same as the basic unemployment allowance. The basic allowance is financed via the national budget. Earnings-related daily allowances are financed via voluntary insurance scheme contributions based on previous income.

Qualifying for daily cash benefits

Unemployment benefits are payable to people who have been in work for at least 26 weeks in the preceding 28 months and have worked a minimum of 18 hours per week. The same applies to people who have been self-employed for at least 15 months in the preceding 48 months. To draw earnings-related unemployment benefits, a person must be a member of an unemployment insurance fund. Unemployment benefits are payable for a maximum of 500 calendar days. For unemployed people born between 1950 and 1954, the benefit may be extended until the age of 65 if they turn 59 before their entitlement expires and they have been in work for at least five of the past 20 years. For unemployed people born in 1955 or later, the benefit may be extended until the age of 65 if they turn 60 before their entitlement period expires and they have been in work for at least five of the past 20 years. Instead of unemployment benefits, the person in question may choose to retire with a pension when they turn 62. In such cases, there is no early retirement deduction from the pension.

The Directorate of Labour administers the unemployment insurance scheme. Depending on previous labour market participation, a fixed basic amount is paid – from 25 to 100 per cent of previous income. People without insurance have no entitlement to unemployment benefits. The benefits are income-related and based on a specific period of time prior to unemployment – up to a maximum of 70 per cent of previous income.
In Iceland, self-employed people are entitled to unemployment benefits if they wind up their businesses, have paid tax on their incomes, and meet other requirements that apply to unemployed people.

Qualifying for daily cash benefits

Entitlement is based on full-time work for at least three months during the preceding 12 months. For the full daily cash benefit amount, the requirement is 12 months of full-time employment. Unemployment benefits are payable for a maximum period of 30 months. The first period in which unemployment benefits are payable is based on previous regular work. A person may qualify for a new unemployment benefit period by means of activities deemed equivalent to work e.g., labour-market training, a period of voluntary work, employment with a temp subsidy, or a period in which they are in receipt of a subsidy to set up their own business.

The unemployment insurance scheme is financed from the national budget and administered by the Labour and Welfare Administration (NAV).

Qualifying for daily cash benefits

Previous income is a condition for entitlement to unemployment benefit. The person concerned must have had income from work of at least 1.5 times the basis amount during the preceding calendar year or an income from work of at least three times the basis amount during the preceding three calendar years. In this context, daily cash benefits in the event of sickness that are granted for maternity-related illness, pregnancy benefits and parental benefits are considered equivalent to income from work. The maximum benefit period depends on previous income from work. The benefit period is 104 weeks if the income was at least twice the basis amount, and 52 weeks if the income was less than that. To qualify for unemployment benefits, the individual’s working hours must have been reduced by at least 50 per cent compared to the working hours prior to unemployment.

Unemployment insurance consists of basic insurance and voluntary unemployment insurance. Non-insured people who otherwise meet the requirements (and who are 20+ years old) are entitled to a basic amount.
The unemployment insurance funds administer both the basic amount (basic insurance) and the income-dependent amount (unemployment insurance). The payments are financed by contributions from members of unemployment insurance funds, through financing and unemployment scheme contributions to the state, and by labour market contributions payable to the state by employers and self-employed people.

Qualifying for daily cash benefits

To qualify for unemployment benefit, an individual must have been employed for at least six months and worked at least 80 hours per calendar month or have been employed for at least 480 hours over a consecutive period of six calendar months and worked at least 50 hours per month during all six months within a 12-month period (referred to as the “employment requirement”). The benefit period is 300 days for singles and 450 days for parents whose children are under 18 at the end of the benefit period. Benefits are payable for a maximum of 75 days per benefit period while in part-time work (part-time unemployment). The remaining days may only be used in weeks when the individual has been fully unemployed.

In some of the countries, a waiting period applies before unemployment benefits are paid.  Denmark and Iceland do not have waiting periods. In the Faroe Islands, the waiting period is 1–10 days, depending on previous income; in Norway, it is three days; and in Finland and Sweden, seven.

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.

Please refer to the section on Other social benefits, for more specific information on rules in each of the Nordic countries.