A system in crisis with the worst yet to come: Social security spending in Finland 1980-2018 and some gloomy forecasts for the near-future (2019-2030)

Abstract: Finland’s social security spending has been increasing rapidly over the past four decades, and is expected to continue increasing in the decades to come. The increase has been largely driven by population ageing resulting in increased old-age spending. Finland’s social security system is however more than just old-age social security; which warrants a more detailed analysis of the different types of social security spending. This paper analysed the historical development (1980-2018) of Finland’s social security spending using ordinary least squares regression models, theoretical-, and empirical literature to determine the main influences on social security spending. In order of magnitude: the old-age dependency ratio, labour productivity growth, the poverty rate, the unemployment rate, low-skilled migration, and adult obesity were found to be the main determinants of social security spending. Short-term (2019-2030) time-series forecasts were also performed in order to predict the near-future development of social security spending in Finland. The forecasts predicted that social security spending will continue to increase at a rapid pace; reaching around 34% of GDP by 2030. Based on theoretical and empirical literature, as well as the results from the statistical analyses performed in this study; I drew a number of conclusions and presented a few policy suggestions that could help Finland deal with the current crisis in financing its social security system.