Structural reforms for long-term growth

1. Structural reforms for long-term growth March 18, 2013 Zuzana Šmídová, OECD

2. What drives economic growth?

3. Uneven convergence in labour productivity levels over past decade

4. Difference vis-à-vis upper half of OECD countries GDP pc Labour utilisation Productivity

5. How to improve labour utilisation?

6. Long term unemployment a concern since the crisis

7. Improving labour utilisation • Unemployment benefit schemes • Active labour market policies • Labour taxation (second income earners, older workers, AETR, METR, …) • Labour market regulations and collective wage agreements • Retirement and disability schemes

8. Unemployment benefit schemes

9. Unemployment benefit schemes

10. Active labour market policies

11. Retirement and disability schemes • Official retirement age vs contributory period • Unemployment of older workers (50+) • Drawing a pension and/or working • Working – is my pension increasing?, what tax, ssc do I pay? • How long will I enjoy the pension (life expectancy, years spent in healthy life)?

12. Men’s pensionable age in OECD

13. Labour taxation – average tax wedge

14. Employment protection legislation

15. How to improve productivity? • More competition and business environment– easing restrictions for entry to markets • Increase human capital – education • Improve general allocation of resources – cuts in state subsidies, better functioning of financial markets • Framework conditions – general business environment, tax systems, innovation policies.

16. Product market regulation (PMR) • Indicators measuring PMR de jure, internationally comparable, with historical data • state control of business enterprises; • legal and administrative barriers to entrepreneurship; • barriers to international trade and investment • World Bank’s Doing Business country ranking, etc.

17. Education • Graduation rates (university) • Returns to tertiary education • How to get there – secondary education, school fees, scholarships • Quality of education • Success in getting a job ( tertiary) • Success in getting to a uni ( secondary) • Primary? PISA tests (15 yr-olds in match, reading, science, specific modules)

18. Innovation

19. Structural reforms help sustainability, …

20. …improve budget balance, A permanent one-percentage point increase in employment can improve the budget balance by between 0.3 and 0.8 percentage points

21. …raise GDP

22. OECD’s Going for growth exercise

23. The pace of reforms has remained high overall Action on areas covered by GfG recommendations stands at its highest level since 2005

24. But uneven across countries • Particularly high pace of reforms in euro area countries under financial assistance programmes or direct market pressures • Including in politically-sensitive areas: labour market regulations and social welfare systems • Even controlling for these countries, action on priority is highest • Much more moderate pace of reforms in other euro area countries • In particular those with a current account surplus • But also in countries with highest living standards (US, Switzerland, Norway) • More active reforms in these countries would help achieve rebalancing, both globally and in the EA

25. Countries reforming most have also consolidated their budget Pace of structural reforms against budgetary consolidation over the past two years

26. 2013 Going for Growth priorities In Europe: • Emphasis on active labour market and social policies • Reforms to foster job creation, hiring and labour mobility, incentives to take-up work • Reduction of barriers to entry in services In the US: • Active labour market policies • Access to quality education and health insurance

27. 2013 Going for Growth priorities In Japan and Korea: • Benefit systems (childcare policies) • Duality in employment protection legislation • In lower-income OECD countries and BRIICS: • Extending the coverage of social protection • Reforming labour market regulation to reduce informality • Improving primary and secondary education

28. Further reading • Arnold, J., A. Bassanini and S. Scarpetta (2007), "Solow or Lucas?: Testing Growth Models Using Panel Data from OECD Countries", OECD Economics Department Working Papers, No. 592, OECD Publishing.doi: 10.1787/028487061153 • http://www.oecd.org/eco/growth/going-for-growth-2013.htm • Employment protection legislation indicators and their impact of employment http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm • Product market regulation and impact on growth http://www.oecd.org/eco/reform/indicatorsofproductmarketregulationpmr.htm • Measuring quality of education - PISA http://www.oecd.org/pisa/