Finland's Happy Little Economic Crisis

0:00 Finland is consistently ranked as the happiest country on Earth,

0:03 topping off a list dominated by its other northern European peers,

0:06 Denmark, Iceland, and Sweden.

0:08 Now, this happiness is particularly impressive [music] given that their country

0:11 looks like this for at least a third of the year,

0:13 but even still, from a high level,

0:15 [music] it's easy to see the big variables contributing to this.

0:18 Excellent human development, social stability,

0:20 a very egalitarian society, [music] strong worker protections,

0:23 and a big push for work-life balance ingrained into the culture.

0:26 Sounds great, but the only problem with all of this is that Finland is going

0:30 through an economic rough patch right now [music]

0:31 that would be crippling to most other nations.

0:34 Last month, its unemployment rate reached 10.6%,

0:36 [music] the highest of any country in Europe,

0:38 a continent with some stiff competition.

0:41 To put that into perspective,

0:42 a country like the USA has only ever had a recorded

0:45 unemployment rate that high twice since the Second World War.

0:48 Once during early lockdowns from COVID, which was a bit of an outlier,

0:51 and a second time briefly at the height of the 1982 recession.

0:54 This makes their famous cheerfulness kind of puzzling

0:56 because another major factor that overwhelmingly contributes to happiness,

0:59 [music] despite what the old adage might suggest, is money.

1:02 All of the happiest countries in the world are high-income advanced economies,

1:06 and that's not by accident.

1:07 [music] The healthcare and education and social services

1:10 that make up that lovely human development is not cheap,

1:12 and it also needs [music] taxpayers to support it.

1:15 So, how is it that a country that has

1:17 crisis-level unemployment still is tra-la-la skipping their way through life?

1:21 Is their social safety net so good

1:23 that they just don't have to care about unemployment,

1:25 or is their economy just so fundamentally different

1:27 from something like the USA [music] that comparisons are irrelevant?

1:31 These are genuinely important questions, even for people outside of the country,

1:35 because as factors like AI pose a potential risk to a lot of workers, [music]

1:39 we might really want to figure out how

1:40 Finland is seemingly taking double-digit unemployment in its stride.

1:44 On top of all of this, to make

1:45 the economic paradox [music] that is Finland even more unintuitive,

1:48 their central bank has been quick to point out that while

1:50 their unemployment rate had risen to be the worst in Europe,

1:53 at the same time their employment rate was also rising.

1:56 So, what is really going on up there?

1:59 Well, to find out, as always, we need to answer a few important questions.

2:03 What is the root cause or causes of Finland's significant unemployment?

2:07 How can unemployment and employment be rising at the same time?

2:10 And finally, why is it that that country doesn't really seem too concerned

2:13 [music] about figures that would be considered a crisis in any other economy?

2:17 Managing your money isn't about chasing quick wins.

2:20 It's about building steady habits that grow over time.

2:23 With Trading [music] 212 app,

2:24 you can invest commission-free in real stocks and ETFs,

2:26 and even buy fractional shares, so you don't [music] need thousands

2:29 of euros to start building a diversified portfolio.

2:32 They even offer 3% interest on your entire account just for holding in cash.

2:36 I really like the pies and auto invest function,

2:39 which lets you set up your own diversified portfolio,

2:41 automate monthly deposits, reinvest dividends, and even rebalance automatically.

2:46 A feature usually reserved for big institutions.

2:48 And if you're curious what other people are investing in, you

2:51 can explore the pie library and copy portfolios from categories like tech,

2:54 green energy, or dividend investing.

2:56 You can set up recurring investments, invest while you spend,

2:59 or even try out everything with a practice account first.

3:01 No risk, just learning.

3:03 It's an incredibly simple way to turn good habits into long-term gains.

3:07 Use the link in the description to download Trading 212 and you'll get

3:10 a free fractional share worth up to 100 euros when you sign up.

3:14 To understand how the happiest country

3:16 on Earth is experiencing double-digit unemployment rates,

3:18 we have to explore a series of ill-timed structural

3:20 events that have seemingly hit Finland all at once.

3:23 For years, a core contributor to the Finnish economy has been construction,

3:27 but in recent history,

3:28 what was once a driver of economic growth has become a drag.

3:31 The problems Finland is facing today aren't born of today,

3:34 but are rather the culmination of decades of geopolitical

3:37 events and demographic trends that have shaped the nation.

3:39 To understand the dynamics that made this possible,

3:42 we need to understand a bit of Finland's history.

3:44 Prior to World War II,

3:45 Finland was a largely agrarian society focused on farming and forestry.

3:49 Following the war, Finland's natural resource production lay in shambles,

3:52 and the nation now faced the burden

3:54 of paying massive war reparations to their eastern neighbors.

3:57 Yeah, you might have thought they would have learned their lesson

3:59 with reparations after the Second World War, but at the outset,

4:02 Finland was aligned with the Axis powers, and according to their armistice,

4:05 they owed the Soviet Union the equivalent of $300

4:08 million to be paid in ships and machinery.

4:10 Ironically, these reparations sparked a transition

4:13 in the Finnish economy as it mobilized its now dormant war production machinery

4:16 and shipbuilding industries to make their debts whole.

4:19 A generation of farm workers were pulled from the fields and into the factories,

4:22 starting an internal migration and demographic shift that still persists today.

4:26 Over the past 60 years, Finland's population has rapidly urbanized,

4:29 steadily migrating south towards the country's major cities,

4:32 Helsinki, Tampere, and Turku.

4:33 Today, the vast majority of Finland's citizens live in urban areas.

4:37 As the number of Finns piling into cities increased,

4:39 so did their demand for housing.

4:41 This urbanization created a feedback loop that helped

4:44 to supercharge the country's economic [music] growth.

4:46 With a seemingly insatiable demand for housing and fueled

4:48 by the near free money of zero rate interest policies,

4:51 the Finnish construction industry entered

4:52 into a decade-long supercycle of sorts, peaking in the early 2000s.

4:56 In only 10 years, construction employment would increase by nearly 30%,

4:59 [music] accounting for 10% of total employment,

5:02 and industry revenue would explode by a staggering 67%.

5:06 Finland had seemingly found a means of building endless prosperity,

5:10 but as we know and as history shows,

5:12 every boom eventually busts, particularly when housing is involved.

5:16 In 2021-2022, housing prices had reached an all-time high.

5:20 Builders and borrowers alike a future

5:22 of endless free money and appreciating home prices,

5:24 but the world had other plans.

5:26 [music] A pandemic, forced economic shutdown,

5:28 and a flood of government stimulus pushed inflation

5:30 rates in Finland and the world to record highs.

5:33 To combat this, the Central Bank was forced to raise

5:35 Finland's interest rates from zero to 4.5% seemingly overnight.

5:39 Finland's average mortgage rate would climb from under

5:42 1% to over 4% in less than 24 months.

5:45 The party was over, and the housing

5:47 Finland's economy was built on, well, collapsed.

5:50 By 2024, housing permits had plummeted to their lowest levels in decades,

5:54 turning the country's economic gas pedal into a break.

5:56 By the end of 2025, Finland would record its highest

5:59 number of bankruptcies in over three decades, led by builders.

6:03 The same demographic shift and demand for housing

6:05 that fueled the economic good times of the 2010s

6:08 was now responsible for an oversupply of housing

6:10 and a pool of unemployed workers with nowhere to turn.

6:13 Well, that's not all that's contributing to Finland's unemployment problem.

6:16 If you recall, we mentioned a series

6:18 of ill-timed events that hit Finland all at once.

6:20 While the housing boom may have been

6:22 the casualty of a self-inflicted interest rate hike,

6:24 the second major and likely more permanent blow

6:26 to the economy came from outside its borders, or rather, along its border.

6:31 Its largest one to be specific.

6:33 Russia and Finland share a 1,340 km border,

6:37 and despite their on-and-off history of conflict,

6:39 for the most part, their modern

6:40 relationship has been functional, if not friendly.

6:42 [music] For decades, Finland has managed to master a delicate balancing act

6:45 with its eastern neighbor that proved to be quite economically lucrative.

6:49 Russia wasn't just a neighbor, they were a major trading partner.

6:52 Prior to the war in Ukraine, Russia was a primary source of energy for Finland,

6:55 [music] accounting for nearly 1/3 of all crude oil and natural gas imports,

6:59 and a major export market for Finnish machinery, equipment, and vehicles.

7:02 That, of course, all changed in 2022 [music] with the onset of war.

7:05 Overnight, gas pipelines were closed and imports of electricity were cut off,

7:09 forcing Finland to scramble for alternative,

7:11 yet more expensive options from its western neighbor,

7:13 causing oil prices to more than double.

7:15 In 2019, more than 2,000 Finnish companies exported to Russia.

7:19 By 2023, that number had fallen to a mere 100.

7:23 A primary source of revenue for Finland's forestry,

7:25 machinery, and tourist sectors had simply ceased to exist.

7:28 Nowhere was this impact more apparent than in the eastern

7:30 border towns and villages that relied on trade and tourism.

7:33 Once thriving small and medium businesses saw their customer base vanish

7:37 and unemployment spike as many were forced to close their doors,

7:40 much like the border itself.

7:41 By joining NATO and closing the border,

7:43 Finland consciously chose to prioritize national security,

7:46 but paid an economic price nonetheless.

7:48 While this was a trade-off that many Finns were happy to make,

7:50 it remains one of the major reasons that the country's economy has stagnated,

7:54 dancing in and out of recessions and sports a 10.6% unemployment rate.

7:58 The problems don't end there.

8:00 Stagnating business conditions and high rates

8:02 of unemployment typically aren't headlines that attract talent.

8:04 Quite the opposite.

8:06 [music]

8:06 Finland's educated and techy workforce are looking elsewhere for employment.

8:09 Less than half of Finland's international tech

8:11 professionals have plans to remain in the country,

8:13 citing economic conditions and a lack of jobs as the main reasons.

8:17 Instead, they are turning towards countries like the US or Switzerland.

8:19 [music] Work permits in Finland have been plummeting.

8:22 Finland offers an incredible quality of life and strong social safety nets,

8:25 but none of that matters if you can't find meaningful work.

8:29 To complicate things, the same [music] social safety nets that help make

8:31 Finns the happiest citizens on Earth can disincentivize work,

8:35 particularly for low-wage and part-time workers.

8:37 In fact, the progressive tax system can make working well, irrational.

8:41 Often times, the disposable income gained from accepting employment

8:44 can be less than a third of earned gross wages.

8:46 Someone has to pay for the wonderful social safety net after all.

8:49 In Finland, housing is treated as a fundamental [music] right.

8:52 In fact, they may actually succeed in eliminating homelessness.

8:55 Quite the feat.

8:56 Here, housing allowances play a major role in making housing affordable for all,

8:59 but those positive benefits come with hefty

9:01 price tags that require significant taxation,

9:03 [music] and their steep phase out upon employment often

9:05 results in housed workers losing money rather than making money.

9:09 It's quite the conundrum.

9:10 Finland is finding out the hard way that when your smartest

9:12 citizens want to leave and [music] your unemployed citizens are,

9:15 well, comfortably unemployed, you can't sustain economic growth.

9:19 Contrary to popular belief, you can't grow an economy off good vibes only.

9:23 A collapsed construction industry, a closed border, brain drain,

9:25 [music] and employment disincentives all clashing together in a perfect

9:28 storm to create the highest unemployment rate in Europe.

9:31 Under these conditions, how could anyone imagine employment would rise?

9:35 Well, in this particular case,

9:37 there's no need to put your imagination to work because,

9:39 believe it or not, employment is on the rise in Finland.

9:42 This is quite the paradox.

9:44 How is it possible that unemployment and employment

9:46 can be rising at the same time?

9:48 To understand this, we have to look at how these numbers are calculated.

9:51 In the world of labor statistics,

9:53 being unemployed doesn't just mean you don't have a job.

9:56 It means you don't have a job,

9:57 but you are actively looking for one based on a pretty rigid set of criteria.

10:01 In economic terms, the unemployment rate is a measure

10:03 of the percentage of the labor force that is without work,

10:05 but actively seeking it.

10:07 To understand how unemployment is calculated,

10:09 we need to first understand the labor force.

10:11 The labor force is simply the people in a country

10:13 who are either working or actively seeking work,

10:16 and in Finland are between the ages of 15 and 74.

10:19 Revisiting the definition of unemployment, we find that to be unemployed,

10:22 you are currently without a job,

10:23 are available to start working, and are actively seeking employment.

10:27 To be clear, if you are not job searching,

10:29 you drop from the labor force and are no longer considered unemployed.

10:32 By this definition, a country may experience a drop in unemployment if large

10:35 numbers of its labor force become

10:37 overly discouraged and simply stop seeking work.

10:40 This is exactly what happened in the United States following the Great

10:43 Recession as many older workers simply stopped looking for work entirely.

10:47 Finland is seeing the exact opposite.

10:49 Despite skyrocketing unemployment, the number of employed people in Finland

10:52 is higher than pre-pandemic heights in 2019.

10:55 This is because while unemployment is increasing, so is the total labor force.

10:59 More people, including students, retirees returning to work,

11:02 and immigrants are actively entering Finland's workforce,

11:05 or at least attempting to.

11:06 Of particular note is the recent influx of migrant workers to the country.

11:10 In the last three years,

11:11 Finland's working-age population has grown by roughly 46,000 people.

11:15 The majority of this influx can be attributed to immigration.

11:18 These migrants enter the country in search of work

11:20 and are immediately added to the labor force calculation.

11:23 As such, it is estimated that nearly 44% of the total

11:26 increase in unemployment is related to increases in immigration-related labor.

11:30 This is what makes the paradox possible.

11:32 The decrease in the number of people working

11:34 has technically been smaller than the rise in unemployment.

11:37 Job losses only actually account for a small part of the country's

11:39 rising unemployment with new job seekers making up the rest.

11:43 When a large group of people like retirees or immigrants begin a job search,

11:46 they move from out of the labor force to unemployed.

11:49 If half of them find jobs and the other half are still looking,

11:52 both the number of employed people

11:53 and the number of unemployed people goes up simultaneously.

11:55 [music] Nothing in economics is as straightforward as it seems,

11:59 but nonetheless, it all makes sense.

12:01 So, if the economy is weathering what might seem [music] a crisis to most,

12:04 a collapsed construction industry, a closed border, and a shifting labor force,

12:07 the question remains, why do they seem unfazed?

12:11 Well, to be clear, it's not that they don't care.

12:13 [music] They do.

12:15 A 10% unemployment rate is nothing to write home about.

12:18 It is a serious social strain on the government and its citizens.

12:21 Finland's stagnating economy, increasing debt burden,

12:23 and rising unemployment rate have citizens concerned,

12:26 but it's mostly for the future of younger generations.

12:29 It's fair to say such stances would have the streets

12:32 of many countries filled with protesters calling for change,

12:35 but that is just not the case in Finland,

12:37 mainly because they have one of the strongest

12:38 social safety nets in the world designed

12:40 to provide decent living conditions and ensure

12:43 all basic needs are covered for all citizens.

12:45 Universal health care, affordable child care for all,

12:47 free primary and affordable secondary education, strong workers' rights,

12:51 and a generous pension plan for retirees sounds

12:53 like a fairy tale dream to most people, but in Finland, it's all very real.

12:57 In many modern economies, losing a job can be catastrophic.

13:00 A fast track to poverty and a loss of basic needs.

13:03 For instance, in the United States,

13:05 health insurance is most often tied to employment.

13:07 In Finland, it's a universal right.

13:09 While becoming unemployed is never ideal,

13:11 Finns find comfort in knowing that their basic fundamental needs are

13:14 covered and that they are entitled

13:15 to generous lengthy unemployment fund benefits.

13:18 While a nice support, this coin has two sides.

13:21 [music] Generous and lengthy unemployment

13:22 benefits often have a disincentivizing effect,

13:25 one of the many contributing factors

13:26 in the unemployment that Finland is grappling with today,

13:29 new stricter job-seeking requirements are being

13:31 put in place to encourage workforce participation,

13:33 along with stricter requirements for work-based residence permits.

13:37 [music] Coincidentally, these requirements are working.

13:39 More people are seeking work, but statistically speaking,

13:41 these same requirements are increasing the unemployment rate by keeping

13:44 more individuals in the labor force without meaningful job prospects.

13:48 One bright spot is that unlike many of its European neighbors,

13:51 housing costs have remained relatively stable in [music] Finland.

13:54 The country's housing first policies have

13:55 not only managed to near eliminate homelessness,

13:57 but have managed to maintain Finland's place as one

13:59 of the most affordable housing markets in Europe.

14:02 Coupled with remarkably stable inflation relative to their neighbors,

14:04 affording the cost of basic needs like food and shelter are

14:07 less of a crisis and more of an inconvenience for Finland's unemployed.

14:10 And for better or worse, high unemployment is nothing new in Finland.

14:14 But historically, it comes in waves.

14:16 Finns view it less as an economic collapse and more of a cyclical correction.

14:20 They see the current spike in unemployment

14:22 more as an ill-timed combination of temporary shocks,

14:24 the aftereffects of COVID, inflation, and interest rate spikes,

14:27 and the Russia-Ukraine war, than a systematic failing.

14:30 Hardship is nothing new to the Finns.

14:32 They have persevered through hard winters, wars,

14:34 and cycles of economic struggles for decades,

14:36 and have seemingly been all the happier for it.

14:38 There's a collective patience among the people.

14:40 They are waiting for the turnaround that always inevitably arrives,

14:43 and the signs are starting to show.

14:45 In the meantime, [music] they are bolstered

14:47 by a unique Finnish cultural philosophy, sisu.

14:50 It's a Finnish word without a direct English translation,

14:52 but it broadly encompasses a mix of stoicism,

14:54 [music] extreme perseverance, and dignity in the face of hardships.

14:58 And it has seen them through many.

15:00 As they say, sisu will get you even through granite.

15:03 Finland isn't the happiest country on Earth because their economy is booming.

15:06 They are the happiest because they are a nation

15:08 and people strong enough to collectively persevere when it isn't.

15:12 And so, as the world turns to Finland for lessons to navigate

15:15 the AI-driven employment challenges that may be just over the horizon,

15:18 the Finns will likely do what they always have.

15:22 [music] Embrace sisu and see it through.

15:23 Thanks for watching, mate.

15:24 Bye.