Effects of labour market reforms in OECD countries – implications for Slovenia

1. Effects of labour market reforms in OECD countries – implications for Slovenia International Conference organized by the Ministry of Labour, Family and Social Affairs – Labour Market Reform: New Opportunities for a Better Tomorrow 17 September 2012, Ljubljana Rafal Kierzenkowski OECD, Economics Department, Head of Slovenia desk

2. Large income gap driven by productivity shortfall Gap relative to the upper half of OECD countries, 2010 Labour market reforms in OECD countries 2 Source: Going for Growth (2012).

3. Breakdown of labour resource utilisation Gap relative to the upper half of OECD countries, 2010 Source: OECD (2011), OECD National Accounts Statistics and OECD Economic Outlook: Statistics and Projections (databases); and OECD Productivity Database, December. Labour market reforms in OECD countries 3

4. Increase in the unemployment rate... Per cent Source: OECD (2012), “Employment - by economic activity: Short-Term Labour Market Statistics”, OECD Employment and Labour Market Statistics (database), September. Labour market reforms in OECD countries 4 Source: Going for Growth (2012).

5. ...and outflows of labour supply since the crisis Change in labour force participation rates, percentage points, 2008Q1-2012Q1 Labour market reforms in OECD countries 5 Source: Going for Growth (2012).

6. Reform packages can induce short-term benefits A package combining a decline in entry barriers, a reduction in unemployment benefit replacement rate and a relaxation of job protection in a “rigid” economy Source: Cacciatore, M., R. Duval and G. Fiori (2012), “Short-term Pain or Gain? A DSGE Model-based Analysis of the Short-term Effects of Structural Reforms in Labour and Product Markets”, OECD Economics Department Working Papers, forthcoming. Labour market reforms in OECD countries 6

7. Reductions in unemployment replacement rates Change in aggregate employment following a reduction in the initial unemployment benefit replacement rate Note: ** represents statistical significance at the 5% level. The simulation is based on the median-sized reform observed in the estimation sample. The impact of the reform is estimated controlling for initial unemployment benefit replacement rate. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 7

8. Reductions in unemployment benefit duration Change in youth unemployment following a reduction in unemployment benefit duration Note: *** and ** represent statistical significance at the 1 and 5% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. The impact of the reform is estimated controlling for initial unemployment benefit replacement rate. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 8

9. Boost spending on active labour market policies Spending on active labour market policies, 2009, in thousand USD PPPs Note: Active labour market policies cover programs dealing with PES and administration, training, job rotation and job sharing, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives. Source: OECD, Labour Market Programmes and OECD Economic Outlook databases Labour market reforms in OECD countries 9

10. Active labour market policies Change in aggregate employment following a “typical” increase in public spending on ALMP employment incentives Note: *** and ** represent statistical significance at the 1 and 5% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 10

11. Tackle labour market dualism Employment protection legislation, index of 0-6 from least to most restrictive Source: Going for Growth (2012). Labour market reforms in OECD countries 11

12. Reforms of job protection: regular contracts Change in female unemployment following a “typical” reduction in job protection on regular contracts Note: *** and ** represent statistical significance at the 1 and 5% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 12

13. Reforms of job protection: temporary contracts Change in aggregate employment following a “typical” reduction in job protection on temporary contracts Note: *** and * represent statistical significance at the 1 and 10% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 13

14. Reduce coverage rates of collective agreements Source: Going for Growth (2012). Labour market reforms in OECD countries 14

15. Administrative extensions of collective agreements Change in female unemployment following a decline in excess bargaining coverage Note: ** and * represent statistical significance at the 5 and 10% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 15

16. Refrain from further increasing the minimum wage Minimum wages, per cent, 2010 Note: Median earnings are for full-time employees and mean earnings for full-time workers. Source: OECD (2012), “Earnings: Minimum wages relative to median wages”, OECD Employment and Labour Market Statistics (database), June. Labour market reforms in OECD countries 16

17. Reform the pension system to boost labour supply Labour force participation rates of 55-64, 2011 Source: OECD (2012), OECD Employment and Labour Market Statistics (database), June. Labour market reforms in OECD countries 17

18. Product market reforms Change in aggregate labour force participation following a “typical” easing of product market regulation Note: ** represents statistical significance at the 5% level. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 18

19. Ease regulation of professional services Index scale of 0-6 from least to most restrictive Source: Going for Growth (2012). Labour market reforms in OECD countries 19

20. Reduce state control of business operation Index scale of 0-6 from least to most restrictive Source: Going for Growth (2012). Labour market reforms in OECD countries 20

21. The cycle is important Change in aggregate employment following a “typical” reduction in initial unemployment benefit replacement rate Note: The lower line corresponds to the impact of the reform during “bad” times, while the upper line represents the impact during “good” times, corresponding to the minimum and maximum levels of the unemployment gap, respectively, as observed across the sample (i.e. across all countries and time). The central broken line represents the impact of the reform when the unemployment gap equals its median value. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Labour market reforms in OECD countries 21

22. Thank you for your attention! 22