Why is it so hard to set coherent priorities

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Why is it so hard to set coherent priorities?

• by Anders Reutersward, OECD
• References
• OECD Jobs Strategy (1994, revised in late 90s)
• On-going reassessment of the Jobs Strategy
• Objectives see editorial of Employment Outlook
  2004
• Numerous studies of particular issues e.g.
• Employment Outlook 2004 chapters about
• Employment protection legislation
• Policies to formalise informal employment
• Employment Outlook 2005 chapters about
• Labour market programmes and activation
  strategies
• Performance management in public employment
  services

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The OECD Jobs Strategy

• Enhance the business climate and competition
• Sustainable growth non-inflationary
  macroeconomic policy supported by structural
  reforms.
• Enhance product market competition reduce
  monopolistic tendencies and insider-outsider
  mechanisms.
• Remove administrative obstacles to enterprise
  creation and expansion.
• Foster and diffuse technological know-how.
• More flexible working-time.
• More flexible wages and labour costs.
• Reform employment security where it inhibits job
  creation.
• Develop activation policies for the jobless --
  reduce dependency on social benefits
• Strengthen ALMPs (active labour market policies)
  and make them more effective.
• Reform unemployment insurance and other social
  benefits for the working age. They should promote
  equity goals, but with less negative effects on
  labour supply.
• Improve skills wide-ranging changes in education
  and training.

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Reasons to reassess the OECD Jobs Strategy

• Unemployment has declined in many countries. Why
  not everywhere?
• Relatively good performance in countries that
• Improved the business climate -- more flexible
  wages and working time, less rigid job security,
  less red tape (E.g. US, Australia, New Zealand,
  Ireland)
• Developed activation programmes, requiring
  benefit recipients to accept mutual obligations
  (English-speaking countries, Netherlands,
  Denmark)
• Challenges ahead, especially ageing
• A key objective should be to raise employment via
  higher labour force participation, not only
  reduce unemployment (Cf. the EUs Lisbon
  targets)
• Marginal labour market groups require flexible
  job conditions
• The elderly and the disabled
• Parents with small children
• Students

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Efficiency and social equity Apparent goal
conflicts and policy trade-offs

• Are wide wage gaps inevitable?
• Skill-based wage differences have become more
  important for labour allocation and productivity
• Low-skilled wages may have to fall. Relatively
  strong employment growth in countries that permit
  low wages
• But competition can reduce other wage differences
  if they have non-economic causes (e.g. tradition)
• Equal opportunities, upward mobility?
• Risk of lock-in effects in low-wage jobs
• Job conditions should favour life-long learning
  

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• Job security and flexibility
• EPL (employment protection legislation) makes
  many prime-age and older workers more secure
• Some degree of job stability favours job-specific
  human capital formation
• However, strict EPL creates entry problems for
  youths and women
• Less strict EPL makes it easier for employers to
  hire workers
• EPL reforms should aim at
• Balance between security and flexibility (a bit
  of both in all jobs)
• Less segmentation between temporary and
  permanent job markets
• Some countries only liberalised fixed-term
  contracts
• This led to job creation, but at the price of a
  more segmented labour market
• Reduced informal employment
• EPL doesnt work well unless acceptable to
  employers and workers
• Rules about indefinite contracts should be
  suitable for most normal jobs

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EPL and unemployment insurance (UI)

• Some dismissal protection combined with UI and
  employment services provide the best response to
  enterprise restructuring
• provided that product market competition
  ensures a dynamic economy
• If employment services and active measures are
  well organised, generous cash benefits are
  preferable to excessively strict EPL
• Do generous cash benefits discourage job search?
• Yes, a little. This negative effect has been
  found relatively small but not negligible
• Activation based on mutual obligations has
  proved relatively effective
• The more generous cash benefits, the greater need
  for activation
• Activation should involve sticks (threat of
  benefit withdrawal) and carrots (high-quality
  services) to promote job-search

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Activation of working-age persons with social
assistance benefits (general welfare)

• Job-search must be mandatory -- as for UI
• Providing job-search assistance to welfare
  recipients has been found cost-effective in many
  studies
• However, some benefit recipients are very hard to
  place in jobs
• With tough job-search requirements, some
  beneficiaries tend to withdraw their claims and
  fall into poverty

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How to deal with the informal economy?

• Informality is largely a tax problem. Need for
  better enforcement of taxes and social insurance
  contributions
• In addition, try to limit the cost of formal
  employment
• (taxes and social insurance, cumbersome
  administration)
• In many less-developed countries, informality
  appears related to deep labour market
  segmentation
• Low-productive, short-term and casual jobs
  small chances of skill improvement
• As per-capita incomes rise, policies should aim
  at a gradual extension of formal employment
  institutions to the whole labour force

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In sum

• Many policy instruments interact and complement
  each other
• The Strategy should therefore be understood as a
  package
• But there is no single solution for all countries
• Cf. the relatively high employment growth
  achieved by partly different means in some
  countries
• USA, New Zealand moderate to low cash benefits,
  tough but low-cost activation measures, liberal
  EPL
• Denmark, Netherlands generous cash benefits,
  tough and expensive activation programs,
  liberal EPL

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Thank you