Split: March 2006 Lecture 1 The Lisbon Strategy: a critical assessment Nick Adnett

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Split March 2006 Lecture 1The Lisbon
Strategy a critical assessmentNick Adnett
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LECTURE OUTLINE

• Key Trends in European Labour Markets
• The Luxembourg Process Lisbon Strategy
• The Changing Economic Demographic Environment
• impact upon economic and social objectives of EU
• Modernising Social Europe
• some key principles

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European Labour Markets

• Employment growth has been slow participation
  rates low
• Decline in the participation rate of elderly
  males rise in that of prime-age females
• The labour force is ageing
• The intensity of work is increasing, yet work is
  spread more thinly
• Deindustrialization is continuing

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European Labour Markets (contd.)

• Gender gaps are still large
• pay gap, occupational crowding
• ? Demand for unskilled workers
• Labour market inequality is increasing
• Unemployment is still high and unevenly
  distributed
• Collective bargaining is becoming more fragmented
• EU Labour markets are relatively highly
  regulated.
  

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ISSUE 1INCREASING LABOUR MARKET INEQUALITY

• increasing employment inequality
• growth of flexible working
• part-time, temporary
• high unemployment
• unemployment incidence highly skewed
• growth of early retirement
• increasing wage inequality
• relative and absolute decline in lowest wage
  groups
• education premiums risen

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Increasing Wage Inequality

• Causation
• increased supply of unskilled workers or
  contraction in demand?
• increased supply (demographic, rising female
  share, immigrants) unlikely to dominate since
  trends appear common across industrialized
  economies and employment share of unskilled /less
  qualified workers fallen
• investigations concentrated upon sources of
  reductions in demand

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Causes of Reduced Demand for Low-skilled workers

• Possible factors
• Technological change
• New technology is education-biased
• Globalization
• Outsourcing of low-skilled jobs out of OECD
• Institutional factors
• decline of unions
• deindustrialization
• decline in average firm size

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Globalization

• Increased world trade GATT-inspired reductions
  in tariff-barriers caused export of low-skilled
  jobs to NICs
• outsourcing
• fall in the relative price of less
  skill-intensive
• BUT
• mfg. imports from low-wage economies have small
  share of developed economies markets
• skill-intensity of production risen across all
  sectors in developed economies

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ISSUE 2 UNEMPLOYMENT PERSISTENCE

• Uneven distribution of unemployment experience
• Increases in unemployment difficult to reverse
  
• hysteresis
• Negative duration dependence
• problem of the long-term unemployed
• Policy Response
• activation and promotion of churning

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ISSUE 3 SLOW EMPLOYMENT GROWTH

• Rise in European unemployment in 70s 80s due
  to longer spells
• Flows out of unemployment relatively low in
  Europe
• Europe has a hiring problem
• low proportion of trade in fast growing world
  markets
• inflexible labour markets?

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The Luxembourg Process

• Amsterdam Treaty
• required a co-ordinated strategy for employment
• Luxembourg Summit (1997) adopted a common
  European Employment Strategy (EES)
• four pillars improving employability, developing
  entrepreneurship, encouraging adaptability and
  strengthening equal opportunities
• four horizontal objectives raising overall
  employment rates extending lifelong
  learningraising quality of employment
  strengthening social partner involvement.
• Member States transform the 19 guidelines into
  annual National Action Plans (NAPs).

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EU EMPLOYMENT STRATEGY Key Themes

• activation of passive policies
• targeting of LTU/social exclusion
• lower tax burden on firms
• human capital investment
• active ageing policies
• processes benchmarking, target-setting,
  monitoring, evaluation and peer review.
• Emphasis upon soft convergence

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THE RECENT EVOLUTION OF THE EMPLOYMENT STRATEGY

• Employment targets, led to
• Making Work Pay reforms
• gender pay gaps
• family friendly work practices
• active ageing policies
• New Economy taken seriously
• lifelong learning skill gaps
• ? Co-ordination of economic, employment and
  social policies
• Quality of employment
• Social partner involvement

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The LISBON STRATEGY

• Objective
• By 2010, the EU should be the most dynamic,
  competitive, sustainable, knowledge-based
  economy, enjoying full employment and
  strengthened economic and social cohesion.

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LISBON STRATEGY

• Targets set
• Employment rate of 67(70) overall and 57 (60)
  for women by 2005 (2010)
• Increasing average EU employment rate for older
  workers (55-64) to 50 by 2010
• Improving basic skills, particularly IT and
  digital, to make EU the most competitive and
  dynamic knowledge-based economy
• Modernise EU labour markets and promote labour
  mobility

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MODERNISING THE EUROPEAN SOCIAL MODEL

• A CHANGED ECONOMIC ENVIRONMENT?
• New production technologies
• holistic firms
• Knowledge-driven economy
• need for flexible employees
• EMU
• ? labour market flexibility desired
• Globalisation
• ? impact of domestic regulations on national
  employment
• Demographics
• ? dependency rate

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Some Guidelines for Reform

• Co-ordinate employment, social and macroeconomic
  policies
• Respect national differences
• lack of convergence of institutions, workplace
  norms and degree of social solidarity
• Design complementary policy packages
• dismantle harmful constraints but replace with
  efficient policies which maintain distributional
  objectives.
• Choose objectives linked to social welfare
• employment rates?

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Freeman, R. (2004), Are European Labour Markets
as Awful as All That? LSE, Centre for Economic
Performance Discussion Paper No. 644.

• Prepared Questions
• Interpret the data in Table 1 and identify the
  reasons for the much higher US employment rate.
  What are main conclusions from comparisons of
  real wages and wage dispersion in the EU and US?
• What are the main institutional differences
  between the EU and US? To what extent are these
  institutional differences a cause of the
  different overall employment rates?
• What does Freeman argue are the main areas where
  EU labour market institutions could be improved?