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Finland is consistently ranked as the happiest country on Earth, topping off a list dominated by its other northern European peers, Denmark, Iceland, and Sweden. Now, this happiness is particularly impressive given that their country looks like this for at least a third of the year, but even still, from a high level, it's easy to see the big variables contributing to this. Excellent human development, social stability, a very egalitarian society, strong worker protections, and a big push for work-life balance ingrained into the culture. Sounds great, but the only problem with all of this is that Finland is going through an economic rough patch right now that would be crippling to most other nations. Last month, its unemployment rate reached 10.6%,
the highest of any country in Europe, a continent with some stiff competition. To put that into perspective, a country like the USA has only ever had a recorded unemployment rate that high twice since the Second World War. Once during early lockdowns from COVID, which was a bit of an outlier, and a second time briefly at the height of the 1982 recession. This makes their famous cheerfulness kind of puzzling because another major factor that overwhelmingly contributes to happiness, despite what the old adage might suggest, is money. All of the happiest countries in the world are high-income advanced economies, and that's not by accident. The healthcare and education and social services that make up that lovely human development is not
cheap, and it also needs taxpayers to support it. So, how is it that a country that has crisis-level unemployment still is tra-la-la skipping their way through life? Is their social safety net so good that they just don't have to care about unemployment, or is their economy just so fundamentally different from something like the USA that comparisons are irrelevant? These are genuinely important questions, even for people outside of the country, because as factors like AI pose a potential risk to a lot of workers, we might really want to figure out how Finland is seemingly taking double-digit unemployment in its stride. On top of all of this, to make the economic paradox that is Finland even more unintuitive, their central bank has
been quick to point out that while their unemployment rate had risen to be the worst in Europe, at the same time their employment rate was also rising. So, what is really going on up there? Well, to find out, as always, we need to answer a few important questions. What is the root cause or causes of Finland's significant unemployment? How can unemployment and employment be rising at the same time? And finally, why is it that country doesn't really seem too concerned about figures that would be considered a crisis in any other economy? Managing your money isn't about chasing quick wins. It's about building steady habits that grow over time. With Trading 212 app, you can invest commission-free in real stocks and ETFs,
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spend, or even try out everything with a practice account first. No risk, just learning. It's an incredibly simple way to turn good habits into long-term gains. Use the link in the description to download Trading 212 and you'll get a free fractional share worth up to 100 euros when you sign up. To understand how the happiest country on Earth is experiencing double-digit unemployment rates, we have to explore a series of ill-timed structural events that have seemingly hit Finland all at once. For years, a core contributor to the Finnish economy has been construction, but in recent history, what was once a driver of economic growth has become a drag. The problems Finland is facing today aren't born of today, but are rather the culmination of
decades of geopolitical events and demographic trends that have shaped the nation. To understand the dynamics that made this possible, we need to understand a bit of Finland's history. Prior to World War II, Finland was a largely agrarian society focused on farming and forestry. Following the war, Finland's natural resource production lay in shambles, and the nation now faced the burden of paying massive war reparations to their eastern neighbors. Yeah, you might have thought they would have learned their lesson with reparations after the Second World War, but at the outset, Finland was aligned with the Axis powers, and according to
their armistice, they owed the Soviet Union the equivalent of $300 million to be paid in ships and machinery. Ironically, these reparations sparked a transition in the Finnish economy as it mobilized its now dormant war production machinery and shipbuilding industries to make their debts whole. A generation of farm workers were pulled from the fields and into the factories, starting an internal migration and demographic shift that still persists today. Over the past 60 years, Finland's population has rapidly urbanized, steadily migrating south towards the country's major cities, Helsinki, Tampere, and Turku.
Today, the vast majority of Finland's citizens live in urban areas. As the number of Finns piling into cities increased, so did their demand for housing. This urbanization created a feedback loop that helped to supercharge the country's economic growth. With a seemingly insatiable demand for housing and fueled by the near free money of zero rate interest policies, the Finnish construction industry entered into a decade-long supercycle of sorts, peaking in the early 2000s. In only 10 years, construction employment would increase by nearly 30%, accounting for 10% of total employment, and industry revenue would explode by a staggering 67%.
Finland had seemingly found a means of building endless prosperity, but as we know and as history shows, every boom eventually busts, particularly when housing is involved. In 2021-2022, housing prices had reached an all-time high. Builders and borrowers alike a future of endless free money and appreciating home prices, but the world had other plans. A pandemic, forced economic shutdown, and a flood of government stimulus pushed inflation rates in Finland and the world to record highs. To combat this, the Central Bank was forced to raise Finland's interest rates from zero
to 4.5% seemingly overnight. Finland's average mortgage rate would climb from under 1% to over 4% in less than 24 months. The party was over, and the housing Finland's economy was built on, well, collapsed. By 2024, housing permits had plummeted to their lowest levels in decades, turning the country's economic gas pedal into a break. By the end of 2025, Finland would record its highest number of bankruptcies in over three decades, led by builders. The same demographic shift and demand for housing that fueled the economic good times of the 2010s was now responsible for an oversupply of housing and a pool of unemployed workers with nowhere to turn.
Well, that's not all that's contributing to Finland's unemployment problem. If you recall, we mentioned a series of ill-timed events that hit Finland all at once. While the housing boom may have been the casualty of a self-inflicted interest rate hike, the second major and likely more permanent blow to the economy came from outside its borders, or rather, along its border. Its largest one to be specific. Russia and Finland share a 1,340 km border, and despite their on-and-off history of conflict, for the most part, their modern relationship has been functional, if not friendly. For decades, Finland has managed to master a delicate balancing act with its eastern neighbor that proved to be quite economically
lucrative. Russia wasn't just a neighbor, they were a major trading partner. Prior to the war in Ukraine, Russia was a primary source of energy for Finland, accounting for nearly 1/3 of all crude oil and natural gas imports, and a major export market for Finnish machinery, equipment, and vehicles. That, of course, all changed in 2022 with the onset of war. Overnight, gas pipelines were closed and imports of electricity were cut off, forcing Finland to scramble for alternative, yet more expensive options from its western neighbor, causing oil prices to more than double. In 2019, more than 2,000 Finnish companies exported to Russia. By 2023, that number had fallen to a mere 100. A primary source of revenue for Finland's forestry, machinery, and tourist sectors
had simply ceased to exist. Nowhere was this impact more apparent than in the eastern border towns and villages that relied on trade and tourism. Once thriving small and medium businesses saw their customer base vanish and unemployment spike as many were forced to close their doors, much like the border itself. By joining NATO and closing the border, Finland consciously chose to prioritize national security, but paid an economic price nonetheless. While this was a trade-off that many Finns were happy to make, it remains one of the major reasons that the country's economy has stagnated, dancing in and out of recessions and sports a 10.6% unemployment rate. The problems don't
end there. Stagnating business conditions and high rates of unemployment typically aren't headlines that attract talent. Quite the opposite. Finland's educated and techy workforce are looking elsewhere for employment. Less than half of Finland's international tech professionals have plans to remain in the country, citing economic conditions and a lack of jobs as the main reasons. Instead, they are turning towards countries like the US or Switzerland. Work permits in Finland have been plummeting. Finland offers an incredible quality of life and strong social safety nets, but none of that matters if you can't find meaningful work. To
complicate things, the same social safety nets that help make Finns the happiest citizens on Earth can disincentivize work, particularly for low-wage and part-time workers. In fact, the progressive tax system can make working well, irrational. Often times, the disposable income gained from accepting employment can be less than a third of earned gross wages. Someone has to pay for the wonderful social safety net after all. In Finland, housing is treated as a fundamental right. In fact, they may actually succeed in eliminating homelessness. Quite the feat. Here, housing allowances play a major role in making housing affordable for all, but those positive benefits come with hefty price tags that require significant taxation, and their
steep phase out upon employment often results in housed workers losing money rather than making money. It's quite the conundrum. Finland is finding out the hard way that when your smartest citizens want to leave and your unemployed citizens are, well, comfortably unemployed, you can't sustain economic growth. Contrary to popular belief, you can't grow an economy off good vibes only. A collapsed construction industry, a closed border, brain drain, and employment disincentives all clashing together in a perfect storm to create the highest unemployment rate in Europe. Under these conditions, how could anyone imagine employment would rise?
Well, in this particular case, there's no need to put your imagination to work because, believe it or not, employment is on the rise in Finland. This is quite the paradox. How is it possible that unemployment and employment can be rising at the same time? To understand this, we have to look at how these numbers are calculated. In the world of labor statistics, being unemployed doesn't just mean you don't have a job. It means you don't have a job, but you are actively looking for one based on a pretty rigid set of criteria. In economic terms, the unemployment rate is a measure of the percentage of the labor force that is without work, but actively
seeking it. To understand how unemployment is calculated, we need to first understand the labor force. The labor force is simply the people in a country who are either working or actively seeking work, and in Finland are between the ages of 15 and 74. Revisiting the definition of unemployment, we find that to be unemployed, you are currently without a job, are available to start working, and are actively seeking employment. To be clear, if you are not job searching, you drop from the labor force and are no longer considered unemployed. By this definition, a country may experience a drop in unemployment if large numbers of its labor force become overly discouraged and simply stop seeking work. This is exactly what happened in the United States following the Great
Recession as many older workers simply stopped looking for work entirely. Finland is seeing the exact opposite. Despite skyrocketing unemployment, the number of employed people in Finland is higher than pre-pandemic heights in 2019. This is because while unemployment is increasing, so is the total labor force. More people, including students, retirees returning to work, and immigrants are actively entering Finland's workforce, or at least attempting to. Of particular note is the recent influx of migrant workers to the country. In the last three years, Finland's working-age population has grown by roughly 46,000 people. The majority of this influx can be attributed to immigration. These migrants enter the country in search of
work and are immediately added to the labor force calculation. As such, it is estimated that nearly 44% of the total increase in unemployment is related to increases in immigration-related labor. This is what makes the paradox possible. The decrease in the number of people working has technically been smaller than the rise in unemployment. Job losses only actually account for a small part of the country's rising unemployment with new job seekers making up the rest. When a large group of people like retirees or immigrants begin a job search, they move from out of the labor force to unemployed. If half of them find jobs and the other half are still looking, both the number of employed people and the number of
unemployed people goes up simultaneously. Nothing in economics is as straightforward as it seems, but nonetheless, it all makes sense. So, if the economy is weathering what might seem a crisis to most, a collapsed construction industry, a closed border, and a shifting labor force, the question remains, why do they seem unfazed? Well, to be clear, it's not that they don't care. They do. A 10% unemployment rate is nothing to write home about. It is a serious social strain on the government and its citizens. Finland's stagnating economy, increasing debt burden, and rising unemployment rate have citizens
concerned, but it's mostly for the future of younger generations. It's fair to say such stances would have the streets of many countries filled with protesters calling for change, but that is just not the case in Finland, mainly because they have one of the strongest social safety nets in the world designed to provide decent living conditions and ensure all basic needs are covered for all citizens. Universal health care, affordable child care for all, free primary and affordable secondary education, strong workers' rights, and a generous pension plan for retirees sounds like a fairy tale dream to most people, but in Finland, it's all very real. In many modern economies, losing a job can be catastrophic.
A fast track to poverty and a loss of basic needs. For instance, in the United States, health insurance is most often tied to employment. In Finland, it's a universal right. While becoming unemployed is never ideal, Finns find comfort in knowing that their basic fundamental needs are covered and that they are entitled to generous lengthy unemployment fund benefits. While a nice support, this coin has two sides. Generous and lengthy unemployment benefits often have a disincentivizing effect, one of the many contributing factors in the unemployment that Finland is grappling with today, new stricter job-seeking requirements are being put in place to encourage
workforce participation, along with stricter requirements for work-based residence permits. Coincidentally, these requirements are working. More people are seeking work, but statistically speaking, these same requirements are increasing the unemployment rate by keeping more individuals in the labor force without meaningful job prospects. One bright spot is that unlike many of its European neighbors, housing costs have remained relatively stable in Finland. The country's housing first policies have not only managed to near eliminate homelessness, but have managed to maintain Finland's place as one of the most affordable housing markets in Europe. Coupled with remarkably stable
inflation relative to their neighbors, affording the cost of basic needs like food and shelter are less of a crisis and more of an inconvenience for Finland's unemployed. And for better or worse, high unemployment is nothing new in Finland. But historically, it comes in waves. Finns view it less as an economic collapse and more of a cyclical correction. They see the current spike in unemployment more as an ill-timed combination of temporary shocks, the aftereffects of COVID, inflation, and interest rate spikes, and the Russia-Ukraine war, than a systematic failing. Hardship is nothing new to the Finns. They have persevered through hard winters, wars, and cycles of economic struggles for decades, and have
seemingly been all the happier for it. There's a collective patience among the people. They are waiting for the turnaround that always inevitably arrives, and the signs are starting to show. In the meantime, they are bolstered by a unique Finnish cultural philosophy, sisu. It's a Finnish word without a direct English translation, but it broadly encompasses a mix of stoicism, extreme perseverance, and dignity in the face of hardships. And it has seen them through many. As they say, sisu will get you even through granite. Finland isn't the happiest country on Earth because their economy is booming. They are the happiest because they are a nation and people strong enough to collectively persevere when it isn't. And so, as the world
turns to Finland for lessons to navigate the AI-driven employment challenges that may be just over the horizon, the Finns will likely do what they always have. Embrace sisu and see it through. Thanks for watching, mate. Bye.
