Turning static pessimism to dynamic optimism. An ex-ante evaluation of unemployment insurance reform in Finland

Abstract

This paper investigates the effects of a Finnish unemployment insurance reform that took place in 2017. The potential duration of earnings-related unemployment benefit was cut by 100 days. We use the microsimulation method to calculate both static and dynamic ex-ante effects on employment, public sector finances and income distribution. According to the static scenario, income inequality increases slightly. However, accounting for the behavioral response mitigates the effect on inequality. Respectively, the positive effect on public finances is amplified.