YEL must not raise the entrepreneur­ship barrier

I use AI daily in software work and see how it expands what one person can build. When technology lowers the barrier to entrepreneurship, policy must follow in the same direction.

The Government’s YEL reform, Finland’s self-employed persons’ pension scheme, is currently in preparation. Its core measure improves on the status quo: entrepreneurs could soon base their YEL working income on either the pension provider’s overall estimate or their taxable earned income. Petri Salminen, chair of Suomen Yrittäjät (the Federation of Finnish Enterprises), says the model addresses the pension-contribution problem facing low-income entrepreneurs.

Why does the YEL reform raise the barrier to entrepreneurship?

The proposal, however, contains three decisions that raise that barrier. It would abolish the current 22% discount on new entrepreneurs’ YEL contributions for their first four years. The taxable-income model would still require working income of at least half of actual earnings, limiting its use for anyone testing entrepreneurship on the side. And the annual minimum YEL payment, set by the working-income floor of 9,423 euros a year, would stay unchanged, even though Mikro- ja yksinyrittäjät ry (the association for micro and solo entrepreneurs) had proposed lowering it.

Together, these three decisions raise the barrier just as technology is lowering it. The same shift is happening well beyond code. It holds for the freelance translator, the consultant, the cleaning professional: AI tools make scaling a business easier than ever before. I have written about how AI changes what developers get paid for, and the same structural shift reaches ever more fields.

Who is affected by scrapping the new-entrepreneur discount?

Scrapping it hits precisely the person who is only just crossing the threshold: the side-activity experimenter and the solo entrepreneur in their first years. Finland now needs to dismantle barriers to entrepreneurship, not add to them.

The new-entrepreneur discount should stay alongside the flexibility mechanism, since they solve different problems. The taxable-income model must also open to the side-activity entrepreneur without the half-of-income threshold, so the barrier to starting stays low. The insurance obligation’s lower threshold must come down far enough that the mandatory annual payment no longer works as a barrier.

Why doesn’t the flexibility mechanism help new entrepreneurs?

The flexibility mechanism is a genuine improvement for the established entrepreneur, who already has both good years and leaner ones behind them. The logic is sound: the new 25% flexibility band replaces the starter discount and targets it more precisely. Whoever is just crossing the threshold, however, faces a different problem.

A new entrepreneur does not yet have the track record against which flexibility could apply. As Mikael Pentikäinen, CEO of Suomen Yrittäjät, has said, the reform’s freedom of choice remains limited. For someone just starting out, that freedom barely exists in practice.

A progressive, low-threshold YEL is a structural question. AI has pushed the marginal cost of starting a new business to a historic low, and a successful experiment can grow into a company that creates jobs and tax revenue. Social security needs to work seamlessly so that as many such experiments as possible can take place. Work and entrepreneurship keep the economy turning. A mandatory payment, levied before real income exists, is an incentive trap. Genuinely defending the market economy means dismantling exactly this kind of barrier.

Finland can choose whether it builds a growth platform for entrepreneurship or a barrier to it. Which will we choose?