Boosting Jobs and Incomes
Lessons from reassessing the OECD Jobs Strategy
Outline of presentation
• New developments over the past decade
• The restated OECD Jobs Strategy
• Successful policy packages
I. Despite some progress since 1994, employment rates
differ significantly across countries…
2005
1994
80
OECD average 2005
75
OECD average 1994
70
65
60
55
50
45
40
New
Zealand
Canada
Australia
United
States
Japan
Russia
Mexico
EU-19
...and across groups
Employment rate for selected groups, 2005
Minimum value
Maximum value
100
90
80
70
60
50
40
30
20
10
0
Prime-age men (25-54)
Prime-age women (25-54)
Older workers (55-64)
Low-skilled
Youth (15-24)
Labour market “inactivity” has emerged as a major issue
The “inactive” population of working age is very heterogeneous (housewives,
students, early retirees, disabled)
But many state that they can work and wish to do so.
Ratio of inactives to the working-age
population
Ratio of unemployment to the working-age
population
45
40
35
30
25
20
15
10
5
0
1994
2005
Asia
1994
2005
European Union
1994
2005
North America
1994
2005
Oceania
Raising employment is made urgent by ageing
populations
Annual labour force growth, with constant participation rates
1975-2005
-1.0
2005-2015
-0.5
0.0
2015-2025
0.5
1.0
1.5
2.0
2.5
1.6
Australia
0.8
0.4
1.6
Canada
0.5
0.0
0.7
Japan
-0.6
-0.7
2.2
Korea
0.6
0.0
1.3
0.7
New Zealand
0.2
1.6
0.6
United States
0.3
II. The restated Jobs Strategy: the 4 pillars
A. Set appropriate macroeconomic policy
B. Remove impediments to labour market
participation as well as job-search
C. Tackle labour- and product-market
obstacles to labour demand
D. Facilitate the development of labour force
skills and competencies
How to promote participation?
• High benefit levels reduce work incentives, but this can be
offset by well-designed activation policies
• To be effective, activation should be part of a “mutual
obligations” approach, backed by moderate benefit
sanctions
• Invest in the most cost-effective employment services and
eliminate those that do not work
• A new challenge: how to extend mutual obligations/
activation principles to lone parents and the disabled?
• What combination of prevention, rehabilitation, re-employment
services and compulsion could help many of these people find work?
Promoting participation (cont’d)
• Phase out early retirement and ensure that
pensions do not discourage work
• Family-friendly working arrangements can
support employment of women
> Easy availability of quality child care, flexible
working arrangements, etc.
• Closer links between school and work are key
to help youth have a good start (Germany
‘dual’ system)
How to remove demand-side obstacles while
providing workers with security?
• No clear link between overall unemployment and employment protection
legislation (EPL). But too-strict EPL affects employment of vulnerable
groups, hampers adjustment to shocks
• Countries have tended to relax EPL governing temporary contracts,
leaving permanent contracts untouched
> While this may raise employment, it has negative consequences: increases
labour market duality, lowers investment in skills
• Recent innovations show other ways to combine flexibility with workers’
security:
> Minimise judicial uncertainty over severance costs (the Dutch
example)
> Replace severance pay with portable, individual savings accounts
(Austria)
> The Danish example of “Flexicurity” (but is it transferable?)
Removing demand-side barriers (cont’d)
• Two policies have unambiguous effects
on labour demand:
– Higher tax-wedges increase unemployment,
especially with high minimum wages
– Open and competitive product markets
promote employment opportunities
How to promote transitions from
informality to formal employment?
• Informal employment or undeclared work is a
major issue in several OECD countries
– Around 20% of social contributions lost in Italy,
Portugal, Spain as a result of undeclared work
– Over 30% in the case of Hungary, Korea, Mexico
• In much of the non-OECD, it is a central issue –
vicious circle of high informality, low productivity
and weak tax base to fund growth-enhancing
programmes
How to reduce informality –key policy issues
• Administrative costs of creating a formal enterprise can
be high
– In a survey for 11 OECD countries, compliance with regulations
costs 4% of value added (5 times larger costs in small firms!)
• High tax rates on labour vis-à-vis profits for small firms
– Key issue: basing taxes on value added (instead of labour input)
would encourage firms to declare work
• Badly-designed employment regulations
• Weak incentives for workers to declare their earnings
and/or lack of trust that they will get benefits in return
– Well designed social protection may help encourage workers
declare their earnings, and detect informal employment
How to enhance workers’ skills?
• Training is associated with better job prospects
• Recognition of prior learning, monitoring of
performance of trainers vis-à-vis firms’ demands, may
help improve the functioning of training markets
• Governments may also provide financial support, cofinanced by firms and workers
• Later retirement increases training incentives for
older workers
• Time constraints for individuals can be eased through
training leave schemes
• Active involvement of the social partners can help too
New evidence on macro policies and
interactions
• Stability-oriented macro policies can:
– help ensure that the benefits of structural
reforms are brought forward early
– reduce the risk that temporary increases in
unemployment become permanent (but this needs
solid initial fiscal conditions)
• There is evidence that policy interactions
matter: combined reforms in two areas lead
to 12% to 19% lower unemployment than
separate reforms
III. Successful policy packages
No single road to Rome, but not every road leads to it!
"Market-reliant" countriesa
2.5
Other successful performersb
Other OECD countriesc
Ratio to OECD averaged
…but they differ vis-à-vis other policy settings
Successful performers have competitive
product markets...
2.0
1.5
1.0
0.5
0.0
Product market regulation
Tax wedge
Employment protection
legislation
(permanent workers)
Generosity of
unemployment
benefit system
Active labour
market programmes
Note: The indicators shown in this figure refer to 2003; 2002 for active labour market programmes.
a) Includes Australia, Canada, Japan, Korea, New Zealand, Switzerland, the United Kingdom and the United States. The average employment rate for this group in 2003 was 70.9%.
b) Includes Austria, Denmark, Ireland, the Netherlands, Norway and Sweden. The average employment rate for this group in 2003 was 71.9%.
c) The average employment rate for this group in 2003 was 61.2%.
d) For each of the indicators, OECD average is equal to one.
OECD follow-up to the JSR and the
High-Level Toronto Forum
1.
Monitoring of Progress in Implementing Policy Reforms via:



Employment Outlook;
Going for Growth;
Economic surveys;
2. Thematic Reviews of 12-14 Countries:


School-to-Work Transition
Helping the Long-Term Sick/Disabled get into Work
3. Skills and Competences:

Developing a new international survey to measure adult skills
(PIAAC)