Financial consequences of career instability in Finland

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In this blog post, we look at the financial consequences of career instability in Finland. 

We’ll first talk a little about career instability in general. Then we move on to discussing its financial consequences in Finland

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Career instability

Anyone who has been following labor markets anywhere in the Western world has noticed how they are frequently portrayed as increasingly unstable. 

On one hand, people should no longer dream of stable jobs. Rather, we should get used to the idea of oscillating between employment, unemployment, freelancing, and entrepreneurship. On the other, we are encouraged to add instability to our own careers by changing jobs often. That purportedly can, for example, increase our earnings and bring other positive rewards.  

Recent studies on the proposed destabilization of employment and careers, however, have not quite supported the doomsday scenario. In Finland (see, for example, this collection of articles), the labor market is not universally turning for the worse. In fact, we see many promising developments in working conditions here in Finland. 

Although the labor market isn’t completely changing for the worse, there always are, however, some instabilities. Those can be economic downturns such as the one caused by the recent pandemic. They can also be instabilities stemming from the employees themselves. An example would be the so-called Great Resignation. Some suggest this may find its way to Finland as well. 

So, as career instabilities do still exist, what do we know about the financial consequences of career instability in Finland? What are those financial consequences like, and do they differ through time and between genders? And, furthermore, is there a benefit from changing jobs often?

We discuss these next. We base our discussion on a recent article by Aart-Jan Riekhoff, a senior researcher at the Finnish Center for Pensions. 

The study

In this study, Riekhoff set out to find out how and how much career instability affects employees’ earnings in the long run in Finland. He also examined whether those effects are different for men and women born in at different times. 

In this study, he characterized stable careers as ones that consist of a single uninterrupted period of employment with a single employer. Unstable careers, in turn, are characterized by longer periods of not being employed, short employment relationships, and frequent job changes.  

He studied six different age groups of employees and looked at their employment histories between 23 and 39 years of age. These were employees born in the 1940s (1940-1945), in the 1950s (1950-1955), in the 1960s (1960-1965), in 1970, 1975, and 1980. 

He examined their earnings in relation to how long they were employed, the number of job changes they went through in this period, and how long they were employed by the same employer.

His data comes from the records of the Finnish Centre for Pensions. The Centre has rather detailed information on annual earnings, the number of days worked, and the number of employment contracts for employees in Finland. 

The data don’t, however, show why individuals are not in an employment relationship. Thus Riekhoff couldn’t take into consideration the reason for the career breaks. 

All in all, his dataset includes 5 396 individuals with 72 578 observations. 

The financial consequences of career instability in Finland

We’ll first take a look at the general trends in earnings and career stability. Then we’ll move on to discussing his findings regarding the financial consequences of career instability in Finland.

General trends in earnings and career stability in Finland

With this detailed analysis, Riekhoff was able to affirm that there is no general trend of increasing career instability through the years in Finland. So, employees today do not, in general, have more insecure careers than employees yesterday had.  

However, some changes between age cohorts are visible. For example, among women job changes have actually become more common over the years. On average, women born in 1940-45 changed jobs three times by the age of 39. In contrast, women born in 1980 on average changed jobs seven times by the time they were the same age.

In general, earnings steadily increase with age in each age cohort and for both genders. The increase in earnings by age was about 4 % per year for men and 3 % for women. In the youngest cohort born in 1980, however, earnings somewhat stalled after the age of 30. Riekhoff attributes this to the economic downturn that started in 2008 and continued in Finland for several years.

Women in all age cohorts had longer cumulative periods of non-employment than men. Men tended to have longer employment relationships with a single employer than women. Both of these relate to reproduction and division of labor in childcare as well as to the effects that division of labor has on women’s employment.

A look at the consequences

As we discussed, Riekhoff lists three different criteria for unstable careers. Those were gaps in employment history and changes in jobs and employers. We’ll now discuss how those characteristics relate to earnings growth.

With each criterion, he was able to show how it affects earnings. However, when more factors were taken into consideration, things got more complicated. Simple cause-and-effect relationships were more difficult to determine.

Career breaks

First, Riekhoff confirms that career breaks are indeed associated with a negative impact on earnings. In general, men’s earnings decreased by about 3 % for each year not employed. Women’s earnings in turn decreased by 2.5 %.

In this age group (23-39), women’s career breaks usually have to do with having children. Men’s don’t. They don’t take family leaves nearly as often or for as long as women in Finland. Thus their gaps are more likely due to unemployment. Rieckhoff shows, however, that regardless of this difference in the reason for the career break, men and women both suffered from them in terms of earnings growth. 

So, in terms of earnings growth, the reason you are absent for the job market is not that important. What are important are your absence in general and the cumulative length of your absence.

He also shows that career breaks tend to have the largest negative impact on the earnings of those with low or intermediate education regardless of gender.

Staying with the same employer

On the one hand, this study also shows that, in general, stable and continuous employment relationships with a single employer are associated with higher earnings. Staying with the same employer increased men’s earnings by 1.2 – 1.5 % for each year employed by the same employer. For women, the increase was 0.8 – 1 %.

There is, however, a difference between genders and education levels. For highly educated men, the association between long employment relationships and earnings growth was stronger. Among women, in contrast, those with a low education reaped almost all of the benefits.

Switching jobs

On the other hand, Riekhoff’s study also suggests that job-hopping early on in one’s career can be beneficial for earnings growth. This applies both to men and women. The effects, however, varied in strength according to education levels. Highly educated men benefitted from job-hopping more than other groups.

Notably, changing jobs had a positive effect on earnings when the change was direct. This means going from one job to another without a gap in between. Job changes with employment gaps in between, in contrast, had a strong negative effect on earnings growth.

Because of these somewhat contradictory results, Riekhoff is careful to point out that one cannot say that either career stability or job-hopping causes earnings growth. The mechanisms are just way more complicated than that. He suggests, though, that in those professions that require high but general skills – as opposed to firm-specific skills – staying too long with the same employer might slow one’s earnings growth.

So, based on Riekhoff’s study it’s unfortunately impossible to tell you whether you should stay or go. The answer is: it depends….

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