Combining part-time work and social benefits: Empirical evidence from Finland

Abstract

We use population-wide data from Finland to provide evidence on the impact of earnings disregard policies on part-time work during unemployment spells. The share of part-time workers among benefit recipients increased sharply from about 10% to nearly 18% over a few years after the implementation of earnings disregards in unemployment benefits and housing allowances, which allowed individuals to earn up to 300 euros per month without reductions in their benefits. Using variation in the impact of the reforms on incentives between individuals eligible for different types of benefits, we estimate that the share of individuals working part-time during unemployment increased by 4.1–4.5 percentage points (23–32%) due to the implementation of earnings disregards, corresponding to a part-time work participation elasticity with respect to the participation tax rate of approximately 1. We find no evidence that earnings disregards crowd out full-time employment, but instead find moderate positive longer-run employment effects.