1 Alternatives for stable economic growth: increasing productivity, greater competitiveness and entrepreneurial innovation Jean-Philippe Cotis OECD Chief Economist Economic background and perspectives for : The track towards a dynamic economy Economist Conferences Madrid, June 29, 2004

2 Five steps on the track towards a dynamic economy Assembling and interpreting the facts Sound analyses of the facts Drawing out credible implications for policy Winning support for structural reform Implementing reforms

3 Euro area economic performance is diverse, but overall it lacks dynamism…

4 …especially in the 3 large economies where real per capita GDP has dropped relative to the U.S.

5 Explaining the differences in GDP per capita: the OECD diagnosis Weak labour utilisation –Hours worked per employee low –Less productive workers are priced out of jobs –Weak employment rates among older workers –Relatively low female labour force participation in some euro area countries Low productivity –Regulatory frameworks limit competition, especially in the non- traded sector –ICT diffusion disappoints in a number of countries

6 Disincentives embedded in old age pension systems discourage older persons from working

7 Disincentives to older workers are also high in social transfer programmes…

8 … and bears on the old age employment rate

9 Removing implicit taxes on older workers would raise labour force participation…

10 … as would lowering work obstacles to females

11 Euro area labour productivity has converged closer to US levels, but not output per capita…

12 …but the interpretation of labour productivity requires care

13 Barriers to entrepreneurship in euro area countries are high 1

14 The policy agenda is broad Good macroeconomic policies are essential Strengthen incentives to work Stemming the flow into early retirement Increase labour force skills Nurturing an entrepreneurial climate Enhancing the creation and diffusion of technological know-how Improving the functioning of financial markets

15 Implementing reforms: what role for the OECD? Progress is being made, but it is slow and uneven The importance of empirical analyses Identifying priorities Strategies for winning broad support for change A ‘piecemeal’ or ‘package’ approach to reform?

16 SPARES

17 Real business sector GDP per employee and per hour worked in the large euro area countries

18 Euro area labour productivity has converged closer to US levels, but not output per capita…

19 … and bears on the old age employment rate