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How rapidly do reforms affect labour market outcomes? Jørgen Elmeskov Economics Department OECD

How rapidly do reforms affect labour market outcomes? Jørgen Elmeskov Economics Department OECD. I do not have the answer. The issue has not been researched Presentation will be based on very indirect evidence

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How rapidly do reforms affect labour market outcomes? Jørgen Elmeskov Economics Department OECD

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  1. How rapidly do reforms affect labour market outcomes? Jørgen Elmeskov Economics Department OECD

  2. I do not have the answer • The issue has not been researched • Presentation will be based on very indirect evidence • And the main conclusion will be modest: reforms are probably like monetary policy, i.e. they work with “long and variable lags” • And lags are likely to differ across types of reform

  3. Roadmap • Long-term effects of structural reforms • Simple empirical evidence • Indirect evidence based on dynamic adjustment to shocks • Model simulations to illustrate the effect from structural policies on adjustment speeds • Model simulations to illustrate the effect from macroeconomic policies on adjustment speeds

  4. EQUILIBRIUM UNEMPLOYMENT RATE AND THE CONTRIBUTION OF INSTITUTIONSOECD 4

  5. EQUILIBRIUM UNEMPLOYMENT RATE AND THE CONTRIBUTION OF INSTITUTIONS SWEDEN 6

  6. Estimates of “equilibrium” unemployment are fragile • Other factors than policy and institutions may play a role (e.g. competition created by globalisation) • Policies and institutions not covered are likely to play a role (e.g. minimum wages) • The effects of policies and institutions are likely to be different across countries

  7. ACTUAL, EQUILIBRIUM UNEMPLOYMENT RATES AND NAIRU 8

  8. ACTUAL, EQUILIBRIUM UNEMPLOYMENT RATES AND NAIRUS 9

  9. CORRELATION BETWEEN CHANGES IN NAIRUS AND INSTITUTIONS

  10. Employment adjustment to shocks • Large literature, but does not discriminate by the source of shocks, i.e. does not identify adjustment to structural reform • Country differences seem to be related to structural policy settings, table is my reading of literature • But estimates are not robust

  11. PERSISTENCE OF UNEMPLOYMENT SHOCKS1970 - 2007 12

  12. TRANSITION DYNAMICS WITH EMPLOYMENT AND PRICE ADJUSTMENT COSTS 1 pp reduction of the benefit replacement rate

  13. TRANSITION DYNAMICS WITH EMPLOYMENT AND PRICE ADJUSTMENT COSTS 1 pp reduction of the income tax

  14. EFFECTS OF A 1 PP DECLINE IN THE NAIRU ON EMPLOYMENT

  15. Summing up • We know little about adjustment speeds to reform • They often seem to be low • They likely differ across types of reform • They probably depend on structural policy settings … • … and on macroeconomic policies

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