Labour market forecast: Employment may fall less than feared, but a significant risk of weak employment trend exists
The impact of the coronavirus crisis on the Finnish labour market may turn out to be smaller than feared if Finland is spared a new wave of the epidemic and subsequent restrictions, and the global economy recovers. However, the number of unemployed jobseekers is projected to remain higher in the next few years than before the start of the crisis. There is also a risk that the effects of the crisis on the labour market could in part remain long-term.
On 18 June 2020, the Ministry of Economic Affairs and Employment published a labour market forecast extending until 2022. The forecast reflects uncertainty about the development of the coronavirus epidemic and the economy. In addition to the baseline forecast, the report also includes an alternative forecast where the risks of a second wave of the epidemic and the slow recovery of the key export markets have been realised.
“In light of the labour market forecast, it appears that the recovery of the labour market may be reasonable. However, there are a lot of open questions in the outlook, and recovery will take longer than the decline we have experienced,” Minister of Employment Tuula Haatainen says.
“During the crisis, we have given considerable support to companies and tried to preserve jobs. Without these measures, the outlook on the labour market would probably be gloomier. However, further measures are necessary. We must invest in the development of skills and competence, among other things,” Minister of Employment Haatainen adds.
Number of employed people will fall by tens of thousands but will return to growth in 2021
According to the labour market forecast, the employment rate will fall until 2021, after which it will start to rise again. According to the baseline forecast, the employment rate would be 72.8% in 2022, whereas according to the so-called risk scenario it would be 72%.
The unemployment rate is projected to rise to 7.6% in 2021 and to fall to 6.7% in 2022. In the risk scenario, the unemployment rate would stand at 7.1% in 2022. The increase in the unemployment rate is subdued by the fact that the supply of labour also shrinks and that hidden unemployment grows.
In the baseline forecast, the number of employed people will decrease by a total of around 70,000 during this and the following year. In the crisis scenario, the drop would be almost 100,000 people. If this scenario occurs already in 2020, there would be 30,000 fewer employed people than before the crisis.
Strong drop in the supply of labour – recovery ahead in 2022
The labour market forecast also examines the total supply of labour, i.e. the combined number of employed and unemployed people. The supply of labour is forecast to decline in 2020 due to an increase in hidden unemployment and a decline in population. In April 2020, a large number of people, especially from younger and older age groups, left the labour market. In addition, restrictions during the coronavirus crisis have reduced immigration, which in recent years has contributed to the supply of labour.
The number of new vacancies has decreased by almost one-third since last year. Because of the weak labour market situation, some of those laid off or made redundant have not started to look for new work. This increases the risk of growing structural unemployment. According to the forecast, the supply of labour would start to grow in 2022.
First peak of the crisis behind – number of unemployed jobseekers and lay-offs falling
The Employment Service Statistics show that the number of unemployed jobseekers, including those laid off full-time, will start to decrease in June, following the peak of approximately 430,000 people in April-May. In particular, the number of laid-off people will fall sharply during the summer. Only slightly more than 41,000 employees are projected to be laid-off full-time still in October.
The average number of unemployed jobseekers in the baseline forecast is 332,000 in 2020, 288,000 in 2021 and 269,000 in 2022. In 2019, there were 240,000 unemployed jobseekers. In the risk scenario, the number of unemployed jobseekers will start to grow again in the autumn to an average of about 355,000 in 2020.
The short-term labour market forecast of the Ministry of Economic Affairs and Employment is based on a statistical time-series analysis that makes use of economic indicators, labour market statistics and policy information, as well as the Ministry of Finance’s GDP forecast and the demographic forecasts of Statistics Finland. The forecast is published twice a year.
Johanna Alatalo, Ministerial Adviser, Ministry of Economic Affairs and Employment, tel. +358 29 504 8084 (demand for labour, employment rate)
Erno Mähönen, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 50 460 0066 (unemployed jobseekers, laid-off workers)
Liisa Larja, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 50 400 7352 (supply of labour, hidden unemployment)