Transcript EU15

The co-ordination of structural
reforms in EU: approach and
evaluation framework
Conference on
Macroeconomic effects of structural reforms
Ankara, 26 October 2008
Declan COSTELLO
Head, of Unit
European Commission
Directorate General for Economic and Financial Affairs
Overview of presentation
•
The Lisbon strategy for growth and
jobs: rationale and co-ordination
instruments
•
Tracking and evaluating progress with
structural reforms
•
Possible lessons for other countries
Part I
The Lisbon strategy for
growth and jobs: rationale
and co-ordination
instruments
Slow growth and persistent per-capita income
differences vis à vis best performers (EU5 in 2005)
Percentage gap with respect to
EU-5 1) GDP per capita
Effect of labour
resource utilisation
(Hours worked per capita)
Effect of labour
productivity
(GDP per hour worked)
Change in gap
2000 - 2005
Luxembourg
Ireland
Denmark
Netherlands
Austria
Belgium
United Kingdom
Sweden
Finland
Germany
France
EU-15
Euro area
Italy
EU-25
Spain
Cyprus
Greece
Slovenia
Czech Republic
Portugal
Malta
Hungary
Estonia
EU-10
Slovak Republic
Lithuania
Poland
Latvia
-80
-60
-40
-20
0
20
40
60
80
100
-80
-60
-40
-20
0
20
40
60
80
100
1) Average of the best 5 performing EU countries (Luxembourg, Ireland, Denmark, Netherlands and Austria)
-80
-60
-40
-20
0
20
40
60
80
100
-10
-5
0
5
10
15
20
… due to low labour utilisation (gap vis à vis
EU5 in 2005)
Gap in labour
resource utilisation
Share of
working age population
Participation
rate
share of
non-unemployment
Change in labour
utilisation gap
2000 - 2005
Average hours worked
per person employed
Luxembourg
Ireland
Denmark
Netherlands
Austria
Belgium
United Kingdom
Sweden
Finland
Germany
France
EU-15
Euro area
Italy
EU-25
Spain
Cyprus
Greece
Slovenia
Czech Republic
Portugal
Malta
Hungary
Estonia
EU-10
Slovak Republic
Lithuania
Poland
Latvia
-40
-20
0
20
40
60
-40
-20
0
20
40
60
-40
-20
0
20
40
60
-40
-20
0
20
40
60
-40
-20
0
20
40
60
-10
0
10
20
… and low growth in labour productivity
(gap vis à vis EU5 in 2005)
Labour
productivity
Gap
Capital
Intensity
Total
Factor
Productivity
Relative
Labour
Quality
Change in labour
productivity gap
2000 - 2005
Luxembourg
Ireland
Denmark
Netherlands
Austria
Belgium
United Kingdom
Sweden
Finland
Germany
France
EU-15
Euro area
Italy
EU-25
Spain
Cyprus
Greece
Slovenia
Czech Republic
Portugal
Malta
Hungary
Estonia
EU-10
Slovak Republic
Lithuania
Poland
Latvia
-80
-60
-40
-20
0
20
40
60
-80
-60
-40
-20
0
20
40
60
-80
-60
-40
-20
0
20
40
60
-80
-60
-40
-20
0
20
40
60
-10
-5
0
5
10
Hourly labour productivity: a secular decline
6
annual % change
5
4
EU
3
2
US
1
0
1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Source : Commission Services, AMECO database
Ageing populations: an older population with a
smaller share of persons of working age
2004
Age
86
80
74
68
62
56
50
44
38
32
26
20
14
8
2
5000
2050
Age
86
80
74
68
62
56
50
44
38
32
26
20
14
8
2
4000
3000
2000
1000
Males
0
1000
Females
2000
3000
4000
4000
3000
2000
1000
Males
0
1000
Females
2000
3000
4000
Ageing populations: shrinking growth potential
with productivity becoming the main driver
EU15
5.0
4.0
5.0
5.0
4.0
4.0
4.5
5.0
4.0
3.0
Employment growth
3.0
3.0
2.2
EU10
3.0
3.0
0.9
GDP growth
1.8
2.0
1.3
1.0
2.0
2.0
2.0
1.0
1.0
1.0
0.0
0.0
0.0
-1.0
-1.0
Productivity
0.0
growth
-1.0
2004-10
2011-30
2031-50
-1.0
2004-10
2011-30
2031-50
The policy response: a strategy
(Lisbon) for growth and jobs
•
Established in 2000 and re-launched in 2005
as an integrated policy response to raise
growth potential and to meet challenges
stemming from globalisation and ageing
•
Covers
macroeconomic
policies,
employment and microeconomic reforms to
product and service markets as will as to
promote innovation and human capital
accumulation
Education and training
Human capital
Labour costs
Flexibility and security
micro-economic IGs
Matching of labour market needs
Inclusive labour markets
Lifecycle approach to work
Full employment
Infrastructure
Entrepreneurship & SMEs
integrated approach
Better regulation
Competition
Internal market
Environment
Industrial policy
macro-economic IGs
ICT
Innovation
R&D
Coordination in euro area
Coherence across policy areas
Wage developments
Composition of spending&taxes
Fiscal policies for ageing
50
Macro-economic stability
number of corresponding key challenges
The EU’s response in 2005: an integrated
approach
One-to-one approach
employment IGs
40
30
20
10
0
A political process supported by
economic analysis
•
Based on the premise an external constraint and peer
pressure can help overcome reform bottlenecks
• short-term (concentrated) costs versus uncertain longterm (dispersed benefits
• -rent-seeking interest groups can capture policy makers
•
Also recognises that there are economic spillovers (trade,
internal market) and political economy spillovers
(institutional learning, demonstration effects, peer pressure)
in coordinating at EU level

-
Delivery mechanisms
•
Overall policy objectives set by Heads of State of
Government (Spring European Council)
•
Some common targets, e.g. employment rates of
70% by 2010, to raise spending on R&D to 3% of
GDP, reduce administrative burden in complying
with regulations by 25% between 2006 and 2010
•
Member States (not the European Commission)
define their key growth challenges and reform
commitments
•
Reform priorities fixed for a three-year cycle, BUT
annual reporting and evaluation exercise which
leads to country specific political recommendations
Part II
Tracking and evaluating
the impact of structural
reforms
Three main instruments
•
Better information on progress with
structural reforms under way in Member
States
•
A systematic framework for identifying
underperforming GDP components and
policy areas
•
The use of modelling tools and econometric
studies
1. Improved information on structural
reforms underway in Member States
•
Basis for a consistent assessment of progress across policy areas,
countries and over time
•
Has EMU helped/hindered structural reforms?
•
Raise external awareness of progress with structural reforms within
the EU
•
Enhance peer pressure from external stakeholders
•
Could facilitate more regular updating of OECD indicators, e.g. on
product market regulations
•
Can be used to devise shocks for modelling exercises
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TEXT
DROP-DOWN LISTS
Using LABREF to track patterns
of labour market reforms
Measures contained in LABREF by reform area: 2000-2006
(% on total reforms in each geographical area)
0.30
New Members States
euro-zone 12
0.25
EU15-excl euro zone
0.20
0.15
0.10
0.05
0.00
Labour
Taxation
Benef its
ALMPs
EPL
Pensions
Wage
Bargaining
Working
Time
Immigration
Mobility
2. Systematically identifying underperforming growth components and
policy areas
•
Jointly developed by Commission with national authorities
•
Pilot test for 10 Member States to be completed by November
2007
•
Solid basis for identifying reform priorities and monitoring
progress in next three year cycle 2008-11
Consistency across countries and policies based on objective
data linked to growth and policies;
•
•
Bottom-up approach that takes account of country specific
circumstances and « national ownership »
Case study: the sources of
growth in Belgium
Case study: Belgium
LABOUR MARKET
- Active labour market policies
- Making work-pay: incentive to work through the interplay of tax
and benefit system
- Reforming labour taxation to stimulate labour demand
- Relaxing job protection while combating labour market segmentation/dualisation
- Working time organisation
- Specific labour supply measures for women
- Specific labour supply measures for older-workers)
- Improving wage bargaining and wage-setting policies
- Immigration and integration policies
- Labour mobility (geographical and sectoral)
PRODUCT AND CAPITAL MARKET REGULATIONS
- Openness to trade and investment
- Barriers to entrepreneurship and business environment
- Competition-friendly policy framework
- Efficient financial markets and access to finance
INNOVATION AND KNOWLEDGE
- R&D, innovation policies and ICT
- Education and life long learning
MACROECONOMIC STABILITY
- Long-term sustainability of public finances and welfare policies
- Stability oriented macroeconomic policies
Level
Change
0
0
-1
-1
1
0
0
-1
0
-1
0
-1
-1
-2
1
1
1
1
1
-2
0
0
0
0
0
0
0
-2
0
0
-1
1
0
0
1
0
Modelling the impact of structural
reforms: Commission simulations
Reform area
Modelling approach
Coverage
Labour and product
markets
QUEST II
EU15
econometric estimates 13 OECD countries[1]
Effective retirement
age
ECFIN ageing model
EU15 aggregate
Internal Market
QUEST II
EU25 aggregate
Administrative burden
QUEST III
WorldScan
EU15 aggregate
EU25
Increased R&D
spending
QUEST III
WorldScan
EU15 aggregate
EU25
[1]
Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom.
Main results
Reform area
Input into models
Results
Labour and product
markets
Changes in policy variables (e.g.
tax wedge, taxes, unemployment
benefits and regulation of PMs)
since 1995.
2% increase in EU15 GDP
and 1.4 p.p. reduction in
structural unemployment
Effective retirement
age
One year increase in retirement
age
1.5% increase in EU15 GDP
by 2025 and 2.5% by 2050
Enlarged Internal
Market
Gains from greater integration and
enlargement (e.g. higher
competition and more trade) over
1992-2006
2.2 increase in EU25 GDP
and 1.4 increase in
employment
Administrative
burden
25% reduction in administrative
burden by 2010
1.3% increase in GDP by
2025
Increased R&D
spending
Reaching national R&D
expenditure targets by 2010
2.6 to 4.4% increase in
EU25 GDP (25-30% due to
spillovers)
A closer look at labour markets

Econometric simulations on the basis of Bassanini and Duval (2006)
- estimated coefficient from the static panel regression used to calculate the impact of reforms
on structural unemployment
- considered reform areas: tax wedge (OECD model, National Accounts data), replacement
ratio, EPL, product market regulation (OECD non-manufacturing industries), union
membership, centralisation/coordination of wage bargaining

Results of econometric simulations
- between 1995 and 2003 the EU15 unemployment rate fell 2.7 percentage points
- structural reforms are responsible for 70% to 80% of the total decline (if data on tax wedge,
including consumption taxes, from national accounts are used it is only 1/3)

Model-based simulation
- QUEST II model
- considered reform areas: tax wedge, replacement ration, product market regulation (impact
through lower mark-ups)
- results broadly in line with econometric simulations
A closer look at labour markets
Simulated contribution
of all observed
policy changes
Simulated contribution
of favourable policy
changes
1995-2003
Cumulative GDP growth :
EU12
0.76
1.68
18.48
EU15
1.18
2.04
19.66
EU12
-0.28
-1.14
-0.75
( 9.22 - 8.47)
EU15
-0.56
-1.38
-0.78
(8.71 - 7.93)
Change in NAIRU:
Part III
Possible lessons for
other countries from the
EU’s experience
An evidence-based approach
•
•
Use evidence-based approaches to defining reform
priorities and evaluating progress, BUT
-
avoid simplistic or mechanical targets and interpretations of
policy and performance indicators;
-
Evaluate progress annually, but be realistic about the time lags
involved in enacting structural reforms and seeing their impact
-
- make use of all modelling and econometric tools to support
debates on structural, but in a prudent a realistic manner
Don’t reinvent the wheel: make use of existing OECD
analysis and other cross-country analysis and indicators
“Framing” a consensus
amongst stakeholders
•
Combination of evidence-based
analysis supported by a political
process can generate results
•
Can take years to “frame” a consensus
on the nature/scale of policy
challenge, and on the policy reforms
needed to tackle them
“Ageing” an EU success
story ?
•
Drew upon OECD analysis in the 1990s on
“Maintaining prosperity in an ageing society” and
added urgency with launch of the euro in 1999
•
First step was to produce more comparable
projections for public spending on pensions and
health care up to 2050 (in collaboration with OECD)
•
Second step was to establish annual peer review on
“Sustainability Risks” leading to policy
recommendations in Stability and Growth Pact
•
Third step was to devise policy responses (debt
reduction, pension reform, extension of working
lives) which also caters for social considerations on
the adequacy of retirement income
Projected changes in public pension
expenditure 2004-2050 (% of GDP)
15
10
5
0
PL
EE
LV
AT
MT
IT
SE
DE
SK
LT
FR
UK
FI
DK
NL
BE
CZ
IE
HU
ES
SI
LU
PT
CY
-5
-10
Large sustainability gap in the EU and big
differences between the Member States
S2 sustainability gap indicator
12
10
8
% of GDP
6
4
2
0
E
-2 B C
Z
D
K
D
E
EE
E L E S FR
IE
IT CY LV
LT LU HU MT NL AT PL PT
SI SK
-4
-6
European Commission
FI SE UK rea -25
a U
ro E
u
e
Overall risk assessment of public
finance sustainability
Risk Category
Country
Low
Denmark, Estonia, Latvia,
Lithuania, the
Netherlands, Austria,
Poland, Finland and
Sweden
Medium
Belgium, Germany, Spain,
France, Ireland, Italy,
Luxembourg, Malta,
Slovakia and the United
Kingdom
High
The Czech Republic,
Greece, Cyprus, Hungary,
Portugal, Slovenia
European Commission
A three-pronged strategy to
ensure sustainability
Ensuring sustainability
Reducing debt
at a fast pace
Raising employment
and productivity
Reforming pension,
health-care and
long-term care
systems
European Commission
… which has contributed to reforms in
many countries
•
Pension systems
•
•
•
•
Early retirement
•
•
in BE,DE, ES, IT, LU, NL AT, PT, FI.
Health care
•
•
Since 2001, FR, DE, ES IT, NL, AT, PT, FI introduced
reforms to public pension systems
In 2006: PT, DE, NL
Announcements: IE, EL, FR, IT, LU
BE, DE, EL, FR, IT, NL, PT
Social protection
•
BE, DE, FR, NL
The impact of pension reforms
females
males
65
pension reform effect
60
cohort & demographic composition effects
55
50
45
40
35
30
25
20
2004
2010
2025
Source: 2006 EPC/Commission report on ageing.
2050
2004
2010
2025
2050