Labour market reforms in OECD
countries: some lessons
Raymond Torres, OECD
1
Social protection and regulations have long been seen as
bad for job creation


Welfare benefits may inhibit work incentives
Labour regulations (minimum wages, dismissal
regulations, etc.) may:


2
make employers reluctant to hire (lower labour demand);
and
slow down allocation of resources (lower labour
productivity
Point 1: If well designed, welfare benefits may promote
labour supply
The “mutual obligations” approach



3
Governments offer good re-employment services,
financial incentives to work, non-financial services
like child-care – the “rights”
Beneficiaries should take active steps to find work
– the “obligations”
This may require a minimum wage set at right level
= > This can be very effective to bring disadvantaged
groups into employment
4
Sw Ic
itz elan
e d
N rlan
D orw d
en ay
m
U N Sw ar
ni et e k
te he de
d r
N Ki lan n
ew ng ds
Ze dom
U C ala
ni a nd
te na
d d
A Sta a
us te
tra s
Ja lia
A pan
u
Fi stri
n a
To Po lan
ta rtu d
Cz l O gal
ec I E C
h re D
Re la
pu nd
G
Lu e bl
xe rm ic
m an
bo y
K urg
o
Fr rea
an
Sp ce
M ai
n
Be exic
Sl
lg o
ov
ak G ium
Re ree
p c
H ubl e
un ic
ga
r
Ita y
Po ly
Tuland
rk
ey
Nordics, Netherlands: top employment performers…
Proportion of people of working age who are employed, 2003
Employment as a percent of population aged 15-64
%
90
85
80
75
70
65
60
55
50
45
40
Source: OECD Employment Outlook 2004.
Point 2: Employment regulations can be made consistent
with employment


Overly rigid dismissal regulations can be a problem.
 It can inhibit job creation,
 Contribute to labour market duality and
 Reduce mobility
But some degree of regulation can help

5

This will force firms to internalise cost of dismissal
decisions: see Austrian reform, experience rating in
the US
Helps find better job match (productivity)
How strict are employment protection regulations in OECD countries?
Index measuring the strictness of employment protection legislation in 2003
Regulation on temporary forms of employment
Specific requirements for collective dismissal
Protection of regular workers against (individual) dismissal
2003
(Scale 0-6)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
6
U
Un nite
ite d S
d
Ki tate
ng s
Ne C dom
w ana
Ze d
al a
a
Ire nd
A la
Sw ust nd
itz rali
er a
Hu lan
ng d
a
Cz D Jap ry
ec en an
h m
Re ar
pu k
Sl
ov
b
a k K lic
o
Re re
pu a
Fi blic
nl
a
Po nd
la
Ne Au nd
th str
er ia
la
nd
s
G Ita
er ly
m
Be an
lg y
No ium
r
Sw wa
ed y
Fr en
a
G nce
re
ec
Sp e
M ain
ex
Tu ico
Po rke
rtu y
ga
l
0.0
Source: OECD Employment Outlook 2004 .
Protection of regular employment against individual dismissal, 2003
(Scale 0-6)
EPL overall including collective dismissal (version 2), 2003
(Scale
Regular
Regular
work
work
individual
total
Regular
individual
Regular work total
5.0
5.0
4.0
4.0
3.0
2.5
2.5
2.5
2.0
2.0
0.5
0.0
0.0
-2.5
0.0
-2.50.0
1.0
-1.5
3.0
5.0
0.0
0.5
1.0
1.5
2.0
2.5
0.5
1.0
1.5
2.0
2.5
3.0
Regular work individual
1.0
1.0
1.5
1.01.01.5
3.5
4.0
4.5
5.0
2.0
1.52.0
2.5
2.5
2.0
Temporary
Temporary
work
0.0
0.0
0.0
0.5
0.50.5
0.0
0.5
1.0
1.5
Wide cross-country differences in union density
and collective bargaining coverage, 2000
Percentage of wage and salary earners
100
Austria
Belgium
France
90
Sweden
Finland
Netherlands
Spain
80
Italy
Australia Portugal
Denmark
Norway
Collective bargaining coverage (%)
70
Germany
Luxembourg
60
Slovak Republic
50
Switzerland
Poland
40
Canada
Hungary
United Kingdom
30
New Zealand
Czech Republic
20
7
Japan
United States
Korea
10
0
0
10
20
30
40
50
60
Trade union density (%)
70
80
90
100
Point 3: Better skills are needed

Information and communications technology has
opened up new growth possibilities:




8
New technology may help raise productivity of existing
firms;
it may also create new market opportunities; and
has raised knowledge externalities
But, this productivity potential will not be realised
automatically: it needs better human capital for all
and new work practices
Big shift away from low-educated employment…
9
Training reduces the risk of unemployment
Low-estimate of the probability change
High-estimate of the probability change
0.4
0.2
0
-0.2
-0.4
-0.6
10
-0.8
-1
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
ITALY Netherlands Portugal
Spain
…Employer-employee bodies help promote human capital
C hart 4. Trainin g particip atio n is greater in firm s w ith a joint CV T agreem ent
Percentage of em ployees in all enterprises with/w ithout a joint CV T agreement with social partners participating in
employer-sponsored CV T courses, 1999 a
%
70
Average
50
Coefficient of variation 0.24
32
0.42
60
50
40
30
20
10
W ithout
ry
ga
nd
un
H
la
Po
ec
re
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tri
a
(b
e
)
s
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A
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et
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ai
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er
U
W ith
an
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xe
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gd
in
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g
ur
ay
m
or
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la
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ar
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en
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pu
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)
(b
Re
ch
ze
C
B
el
gi
um
an
ce
d
Fr
an
nl
en
Fi
ed
Sw
11
0
Point 4 : there is no single policy strategy


One approach is not to do anything, which in countries
where benefit dependency is high will entail nonemployment persistence
Another approach is to reduce benefit levels and their
duration, and reduce demand-side barriers (the
deregulation approach):


12


This will enhance work incentives and will also raise
labour demand
It is also cheaper for public purse
But it will not be enough in certain cases (lone
parents) ...
... And as such does not help improve career
prospects and may lead to labour market insecurity

A third approach is to reform benefits, maintaining
them at an adequate level, but introducing a “mutual
obligations” approach and modernising labour law:





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Provision of benefits, employment-conditional
support and active programmes, in return for
effective job-search
Promoting skill development
Reform of EPL and wage formation systems
This may give job incentives and possibly facilitate
transitions to a higher productivity logic...
... But it is costly and complex
Thank you
14