Do labour market institutions and policies matter? Alena Nesporova Deputy Regional Director for Europe and Central Asia, ILO Geneva

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Structure of presentation Major labour market challenges Changes in labour market institutions and policies Is employment protection legislation rigid? Impact of EPL on labour market outcomes Do labour market institutions and policies matter? Policy conclusions

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Major labour market challenges Despite solid economic growth after 2000 employment declining in half of the countries of the region High un- and/or underemployment Increasing incidence of flexible forms of employment High informal employment Significant labour market segmentation

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Changes in labour market institutions and policies Liberalization of employment protection legislation (EPL) Protection through collective bargaining low due to low coverage by collective agreements Membership in trade unions varies by country but their members protection and policy making capacity is rather low in most countries

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June EPL strictness index (2007) CountryEPLCountryEPL Albania2.1Serbia2.2 Azerbaijan2.2Turkey (2003)3.7 Bulgaria1.9Ukraine2.3 Kazakhstan1.5EU-14 ( without Luxembourg) (2003) 2.4 Moldova2.5Greece2.8 Romania3.0New EU-8 (2003) 2.2 Russian Feder.1.9Black Sea2.4

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Changes in labour market institutions and policies (cont.) Public employment services established but remained weak; in some countries merged with other institutions and de facto disappeared or were decentralized Unemployment benefit schemes poor in terms of coverage, replacement rates and length of payment Increasing emphasis on activation of labour market policies but significant differences among countries in types of policy, their efficiency and access to them. In general spending on LMP in % GDP significantly lower than in EU-15.

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Changes in labour market institutions and policies (cont.) Labour taxation as % of wages declining but remains very high in many countries compared with EU-15 In sum, weakening of workers protection at workplace vaguely compensated by protected move to new jobs through income support in unemployment, broader access to ALMP or better job mediation by PES.

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Impact of EPL on LM outcomes in Central and Eastern Europe Conclusions of bivariate analysis (late 90s) –Stricter EPL contributes towards lower labour mobility –Stricter EPL tends to be associated with higher temporary employment and longer average job tenure. It seems to increase insider/outside segmentation –No impact of stricter EPL on unemployment (aggregate, youth, long-term) Conclusions of bivariate analysis (2003) –EPL continues to have no impact on unemployment and has lost impact on labour dynamics.

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Do labour market institutions and policies matter? Finding from multivariate analysis (late 90s): No statistically significant impact of EPL on the aggregate, long-term and youth unemployment rates in CEE countries. Significant impact of EPL on employment and participation; in CEE countries results indicate that more protection/better law enforcement could contribute towards better labour market outcomes. Labour market outcomes improved by collective bargaining and ALMPs.

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Do labour market institutions and policies matter? Finding from econometric analysis (2003): EPL strictness has no impact on the aggregate, long-term and youth unemployment rates Labour market institutions that matter: ALMPs have positive and labour payroll taxes negative effect on economic activity and employment. ALMPs contribute towards reducing and high labour taxes towards increasing unemployment. Youth and long-term unemployment negatively correlated with trade union density while long payment of UB increases youth and long-term unemployment and reduces economic activity and employment.

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Policy conclusions CEECA countries face a combination of high flexibility and low security, therefore the security side should be strengthened. In general no need to further liberalize EPL in most countries but to improve its enforcement. Collective bargaining at all levels needs strengthening through more effective mechanisms and capacity building of social partners.

OECD Conference on the Black Sea and Central Asian region, Bucharest 23 June Policy conclusions (cont.) Reduction of high payroll taxes and shifting of some social expenditure to general taxation should be considered. Need for further activation of labour market policy through capacity building of public employment service, widening of access to training and other ALMP but also decent income support during job search period combined with incentives for workers to take up jobs, and proper monitoring and evaluation of ALMP to improve their efficiency. Need to address the challenge of low employment intensity of growth and boost demand for labour through balanced macroeconomic policy combined with effective employment and labour market policies.