Thursday, July 30, 2015

What does "No jobs" actually mean

There is a lot of talk - especially in Finland - about unemployment and what to do about it. Based on my experience of working in Finland, Sweden and Estonia I think I can make some comparisons and comments about it.

Firstly it is important to understand that "no jobs" does not mean that the need for work has dissappeared. No! What "no jobs" means is that there is a mismatch between what organizations (and their customers) are willing to pay for a certain task to be done and what the unemployed people need/want for it.
 For example I would be happy to hire someone to take care of all the upgrading and fixing of the technology I have at home, but I am only willing to pay a few tens of euros for that, whereas a skilled IT professional would cost 200-300 hundred/euros a month.
 Another more relevant example is a recent event where a big IT service provider closed its customer support unit in Finland and then hired tens of finnish speaking support agents in Tallinn.
 In Tallinn there is really no unemployment in principle. You can walk to any supermarket and they would hire you in a few days. The problem only is, that they pay you something like 300-500 eur/month net.

 So it is a mismatch between the cost of labour and the willingness to pay for it by organizations and their customers! (e.g. How much would you pay for a pair of jeans? How much would the pair cost if it was made in the Nordics?)

 The solution to unemployment therefore is making the costs lower or increasing the value of the work.

 An important factor to note here is that "the cost" is not only the salary and even the taxes. It is much more. The cost also consists of: risk premium for potential layoff costs, vacation benefits, bureaucracy, people management, insurances, hiring processes etc.
 The cost is also driven higher if the unemployed person receives social benefits and loses them when he takes up a job.

 There is another important factor that the unemployment discussions never consider. The cost of living. Looking at Helsinki and Stockholm from Tallinn for example makes you wonder why:
- You always need to buy a very expensive home insurance?
- Why does big must-have repairs (putkiremppa) of appartments in Finland cost 500-1000 eur/m2?
- Why are there only like 4 construction companies who manage to build new appartments in Helsinki and Stockholm and therefore the prices for new appartments cost approximately 5000-7000 eur/m2?
On the other hand:
- Why do bank transfers in Estonia cost more than they do in Sweden?
- Why is electricity in Estonia more expensive than in the Nordics?

I am not claiming that there one system is better than the other, but I would propose some ideas from this picture:
- Solving unemployment might involve surprising activities. E.g. kill the construction business monopolies in Stockholm and Helsinki, that makes housing cheaper, that allows people to decrease their price of work.
- Paying money as a social benefit should be avoided if ever possible and substituted by social services (e.g. free schools, kindergartens, children's hobbies). This way working and earning 100 eur/month also starts to make sense.
- There are a lot of measures that do not cost much and are not painful for anybody that would help. For example stoping the need for all types of insurances and lessening bureaucracy.