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1 Why is it so hard to set coherent priorities? by Anders Reutersward, OECD References: OECD Jobs Strategy (1994, revised in late 90s) On-going reassessment.

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Presentation on theme: "1 Why is it so hard to set coherent priorities? by Anders Reutersward, OECD References: OECD Jobs Strategy (1994, revised in late 90s) On-going reassessment."— Presentation transcript:

1 1 Why is it so hard to set coherent priorities? by Anders Reutersward, OECD References: OECD Jobs Strategy (1994, revised in late 90s) On-going reassessment of the Jobs Strategy Objectives: see editorial of Employment Outlook 2004 Numerous studies of particular issues e.g.: Employment Outlook 2004: chapters about Employment protection legislation Policies to formalise informal employment Employment Outlook 2005: chapters about Labour market programmes and activation strategies Performance management in public employment services

2 2 The OECD Jobs Strategy: Enhance the business climate and competition –Sustainable growth: non-inflationary macroeconomic policy supported by structural reforms. –Enhance product market competition: reduce monopolistic tendencies and insider-outsider mechanisms. –Remove administrative obstacles to enterprise creation and expansion. –Foster and diffuse technological know-how. –More flexible working-time. –More flexible wages and labour costs. –Reform employment security where it inhibits job creation. Develop activation policies for the jobless -- reduce dependency on social benefits –Strengthen ALMPs (active labour market policies) and make them more effective. –Reform unemployment insurance and other social benefits for the working age. They should promote equity goals, but with less negative effects on labour supply. –Improve skills: wide-ranging changes in education and training.

3 3 Reasons to reassess the OECD Jobs Strategy Unemployment has declined in many countries. Why not everywhere? Relatively good performance in countries that –Improved the business climate -- more flexible wages and working time, less rigid job security, less red tape (E.g. US, Australia, New Zealand, Ireland) –Developed activation programmes, requiring benefit recipients to accept mutual obligations (English-speaking countries, Netherlands, Denmark) Challenges ahead, especially ageing –A key objective should be to raise employment via higher labour force participation, not only reduce unemployment (Cf. the EU’s “Lisbon” targets) –Marginal labour market groups require flexible job conditions The elderly and the disabled Parents with small children Students

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5 5 Efficiency and social equity: Apparent goal conflicts and policy trade-offs Are wide wage gaps inevitable? –Skill-based wage differences have become more important for labour allocation and productivity –Low-skilled wages may have to fall. Relatively strong employment growth in countries that permit low wages –But competition can reduce other wage differences if they have non-economic causes (e.g. tradition) Equal opportunities, upward mobility? –Risk of lock-in effects in low-wage jobs –Job conditions should favour life-long learning

6 6 Job security and flexibility EPL (employment protection legislation) makes many prime-age and older workers more secure Some degree of job stability favours job-specific human capital formation However, strict EPL creates entry problems for youths and women Less strict EPL makes it easier for employers to hire workers  EPL reforms should aim at: Balance between security and flexibility (a bit of both in all jobs) Less segmentation between temporary and “permanent” job markets Some countries only liberalised fixed-term contracts This led to job creation, but at the price of a more segmented labour market Reduced informal employment EPL doesn’t work well unless acceptable to employers and workers Rules about indefinite contracts should be suitable for most “normal” jobs

7 7 EPL and unemployment insurance (UI) Some dismissal protection combined with UI and employment services provide the best response to enterprise restructuring… … provided that product market competition ensures a dynamic economy If employment services and active measures are well organised, generous cash benefits are preferable to excessively strict EPL Do generous cash benefits discourage job search? Yes, a little. This negative effect has been found relatively small – but not negligible “Activation” based on “mutual obligations” has proved relatively effective The more generous cash benefits, the greater need for activation Activation should involve “sticks” (threat of benefit withdrawal) and “carrots” (high-quality services) to promote job-search

8 8 Activation of working-age persons with social assistance benefits (general welfare) Job-search must be mandatory -- as for UI Providing job-search assistance to welfare recipients has been found cost-effective in many studies However, some benefit recipients are very hard to place in jobs With tough job-search requirements, some beneficiaries tend to withdraw their claims and fall into poverty

9 9 How to deal with the informal economy? Informality is largely a tax problem. Need for better enforcement of taxes and social insurance contributions In addition, try to limit the cost of formal employment (taxes and social insurance, cumbersome administration…) In many less-developed countries, informality appears related to deep labour market segmentation Low-productive, short-term and casual jobs; small chances of skill improvement As per-capita incomes rise, policies should aim at a gradual extension of formal employment institutions to the whole labour force

10 10 In sum… Many policy instruments interact and complement each other The Strategy should therefore be understood as a package But there is no single solution for all countries Cf. the relatively high employment growth achieved by partly different means in some countries: –USA, New Zealand: moderate to low cash benefits, tough but low- cost “activation” measures, liberal EPL –Denmark, Netherlands: generous cash benefits, tough and expensive “activation” programs, liberal EPL

11 11 Thank you

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