Ministry of Finance of the Slovak Republic June 21, 2010 How to increase the potential output in Slovakia – the role of employment and education Štefan Kišš Financial Policy Institute Ministry of Finance SR

Ministry of Finance of the Slovak Republic MF SR Outline Where we are  catching-up economy What to do  policies to boost growth and quality of life  focus on human capital How to do it  recommendations 2

Ministry of Finance of the Slovak Republic MF SR Where we are – converging economy GDP rose from 50% of EU average in 1996 to 72% in 2008 Economic crisis caused a drop in GDP and employment 3

Ministry of Finance of the Slovak Republic MF SR Identification of priorities – employment and labour productivity Slovakia vs. EU average (level) See: NBS discussion paper (Filko, Kišš, Ódor, Šiškovič, 2010) 4 -40%-30%-20%-10%0%10% GDP per capita Labour productivity Unemployment rate Youth participation (15-24) Male participation (25-54) Female participation (25-54) Older workers (55-64) Average hours worked Demographic component

Ministry of Finance of the Slovak Republic MF SR Decreasing mainly due to (1) economic boom and (2) activation programmes Still major problem and deteriorating after crisis 5

Ministry of Finance of the Slovak Republic MF SR Sum of employment, education and maternal leave Young and old cohorts essential to increase overall employment 6

Ministry of Finance of the Slovak Republic MF SR Worse than we had initially expected Mainly in reading, science and critical thinking Decreasing over time, however not significantly 7

Ministry of Finance of the Slovak Republic MF SR No general consensus on a single indicator Quality critically low regardless of the indicator Crucial topic for sophisticated – knowledge-based economy 8

Ministry of Finance of the Slovak Republic MF SR What to do – structural reforms Framework conditions 1) Macroeconomic stability Achieved in early 2000s 2) Fiscal consolidation Deterioration in the crisis Crucial for better rating and hence cheaper borrowing 3) Structural reforms – key to boost economic potential  Even more important in the single currency area – without independent monetary policy 9

Ministry of Finance of the Slovak Republic MF SR What to do - raising the employment rate Long-term unemployment  Booming Roma population  Conditional unemployment benefits  Intermediate labour market Low young and old workers employment  Pattern typical for countries in the region  Retirement age in line with life expectancy  Reduce early retirement Rigid labour code?  EPL around OECD average  Allow for flexible arrangements between employer and employees  Social protection for marginalised groups based on activities including education Part-time arrangements  Low in international comparison 10

Ministry of Finance of the Slovak Republic MF SR What to do - Enhancing labour productivity Quantity at a sufficient level  Secondary and tertiary education enrolment Low quality of education - at all levels  Primary Minimise early selection („All Roma in special school“) Improve counselling system Performance-based teachers salaries  Tertiary Improve funding – public and/or private Institutional reform to better differentiate for quality (performance-based funding, accreditation process, etc.) 11

Ministry of Finance of the Slovak Republic MF SR How to do it – bureaucratic framework - EU Europe 2020 New EU strategy for growth and jobs Europe 2020 is a follow-up to a Lisbon Strategy, however…  puts emphasis on social inclusion and climate changes  strengthens a role of the European Council  horizontal approach  less quantitative targets

Ministry of Finance of the Slovak Republic MF SR How to do it – bureaucratic framework - SVK However, we need to focus on country level policies  Minerva – until 2006  Modernization programme Slovakia 21 – until 2010  ? - new programme from 2010 Translated in National Reform Programme – reported to Brussels Pros - some results, public awareness Cons - not a real priority, administrative exercise 13

Ministry of Finance of the Slovak Republic MF SR How to do it – political economy and capacity Political will – reforms hurt - political capital (Roma integration)  Short-term costs, long-run benefits Analytical capacity  Absence of strategic/analytical units at the ministries  Evidence-based policies Evaluation and monitoring (Health reform, 2003)  „Nekecať, merať“ – analytical framework  Building indicators based on outcomes Communication (Higher education fees, 2005?)  Ex-ante, ex-post  Citizens, stakeholders 14

Ministry of Finance of the Slovak Republic MF SR Thank you Štefan Kišš Financial Policy Institute Ministry of Finance of the SR tel.: