How rapidly do reforms affect labour market outcomes? Jørgen Elmeskov Economics Department OECD
description
Transcript of How rapidly do reforms affect labour market outcomes? Jørgen Elmeskov Economics Department OECD
How rapidly do reforms affect labour market outcomes?
Jørgen ElmeskovEconomics Department
OECD
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
2
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
3
4
EQUILIBRIUM UNEMPLOYMENT RATE AND THE CONTRIBUTION OF INSTITUTIONS
OECD
Note: The sample includes the 20 countries examined in Bassainini and Duval (2006) except Germany, Finland and Sweden.
5
Decomposing the impact of recent policy changes on the change in unemployment
Simulated unemployment effects of changes in policies over 1994-2003, in percentage points
Source : Bassanini and Duval (2006)
Change in unemployment rate predicted by policies =
Change in PMR +Change in average replacement rate +
Change in tax wedge +
-10 -8 -6 -4 -2 0 2 4 6
IRL
GBR
USA
DNK
ESP
NZL
DEU
ITA
NLD
FIN
PRT
AUS
BEL
SWE
FRA
AUT
CAN
CHE
JPN
NOR
-10 -8 -6 -4 -2 0 2 4 6 -10 -8 -6 -4 -2 0 2 4 6 -10 -8 -6 -4 -2 0 2 4 6
6
EQUILIBRIUM UNEMPLOYMENT RATE AND THE CONTRIBUTION OF INSTITUTIONS
SWEDEN
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
8
ACTUAL, EQUILIBRIUM UNEMPLOYMENT RATES AND NAIRU
−−− Equilibrium unemployment rate — Unemployment rate — NAIRU
Note: The sample includes the 20 countries examined in Bassainini and Duval (2006) except Germany, Finland and Sweden.
9
ACTUAL, EQUILIBRIUM UNEMPLOYMENT RATES AND NAIRUS
−−− Equilibrium unemployment rate — Unemployment rate — NAIRU
10
CORRELATION BETWEEN CHANGES IN NAIRUS AND INSTITUTIONS
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
Policy Speeding
Slowing
UI -
ALMP +
EPL -
PMR -
Unionisation -
Coordination
+
11
12
PERSISTENCE OF UNEMPLOYMENT SHOCKS1970 - 2007
13
TRANSITION DYNAMICS WITH EMPLOYMENT AND PRICE ADJUSTMENT COSTS
1 pp reduction of the benefit replacement rate
─── Euro area employment & price adjustment costs −−− US employment & price adjustment costs ××× US employment & euro area price adjustment costs
14
TRANSITION DYNAMICS WITH EMPLOYMENT AND PRICE ADJUSTMENT COSTS
1 pp reduction of the income tax
─── Euro area employment & price adjustment costs −−− US employment & price adjustment costs ××× US employment & euro area price adjustment costs
15
EFFECTS OF A 1 PP DECLINE IN THE NAIRU ON EMPLOYMENT
−−− without monetary policy — with monetary policy
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
16