Why is it so hard to set coherent priorities?

1. Why is it so hard to set coherent priorities? by Anders Reutersward, OECD References: OECD Jobs Strategy (1994, revised in late 90s) On-going reassessmentof theJobs Strategy Objectives: see editorial of Employment Outlook 2004 Numerous studies of particular issuese.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

2. 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 activationpolicies 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.

3. 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 onlyreduce unemployment (Cf. the EU’s “Lisbon” targets) • Marginal labour market groups require flexible job conditions • The elderly and the disabled • Parents with small children • Students

5. 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

6. 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 doesn’t work well unless acceptable to employers and workers Rules about indefinite contracts should be suitable for most “normal” jobs

7. 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

8. 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

9. 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

10. 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

11. Thank you