Productivity and structural reforms

Productivity and structural reforms

Ana GOUVEIA

Inês GONÇALVES

Sílvia SANTOS

GPEARI, Office for Economic Policy and International Affairs

14th October 2016

Ministry of Finance – Portugal

Background

2 Ministry of Finance – Portugal

In the recent years, as a response to the economic crisis, Portugal implemented a large number of reforms to address its major structural vulnerabilities and foster productivity growth

Low productivity

growth

Education system

Product markets

Judicial system

Labor market

E.g. Enhanced vocational and

professional training, in close cooperation with

firms

E.g. New Insolvency Code based on the

international best practices

E.g. Liberalization of the energy and

gas market

1. Statistical evidence - reforms


Reform indicators show the progress achieved in recent years. Examples: 1) According to the PMR (OECD 2013 edition) PT ranked 12th position among 33 OECD members (between 2008 and 2013 improved 14 positions in the global ranking). 2) World Bank’s Doing Business 2015 and 2016 editions, Portugal was ranked 20th in terms of the Enforcing Contracts indicator, within a universe of 189 economies (26th position in 2010).

Global competitiveness Index Doing Business

1. Statistical evidence - productivity


• From 2006 to 2012, firms’ productivity followed a downward trend

• Since 2012, firms’ productivity started to recover in a context of a smaller number of enterprises operating in a different context, where some structural reforms are already materializing.


Recovery not only driven by the ones that continue to operate, but also by the exit of firms which have lower productivity levels than the ones that enter the market

1. Statistical evidence - productivity

2. Main questions


What is the impact of structural reform on firms productivity?

How are the gains channeled to the economy (frontier v. laggards)?

Are there diffusion mechanisms in place?

3. Data and methodology


Informação Empresarial Simplificada – IES

Sistema de Contas

Integradas das Empresas (SCIE)

– Statistics Portugal –

i) Firm level database:

Period: 2004-2014



OECD; World Economic Forum; World Bank

PMR;

Global Competitiveness

Index;

Doing Business

ii) Reforms database:

Period: 2006-2014 Institutions

Infrastructure

Macro environment Health and primary education Higher education and training Goods market

Labor market

Financial market

Technological readiness

Market size Business sophistication Innovation

Starting a business

Construction

Property Paying taxes Trading across borders Enforcing contracts Resolving insolvency

Network sectors



∆ TFP t = β0 + β1 ∆ TFP Frontier t + β2 DTF t-1 + β3 REF i,t-1 + μ t + ν i+ ε i,t

∆ LP t = β0 + β1 ∆ LP Frontier t + β2 DTF t-1 + β3 REF i,t-1 + μ t + ν i+ ε i,t


4. Outcome


Not all reforms have a positive impact!!!

WHY? Is it related with the type of

reforms? OR … with the type of firms

that benefit from those reforms?




∆ TFP t = β0 + β1 ∆ TFP Frontier t + β2 DTF t-1 + β3REF i,t-1 + β4Dfront*REF i,t-1 + μ t + ν i+ ε i,t

∆ LP t = β0 + β1 ∆ LP Frontier t + β2 DTF t-1 + β3REF i,t-1 + β4Dfront*REF i,t-1 + μ t + ν i+ ε i,t



4. Outcome


With one exception, the impact on productivity is always positive for frontier enterprises!!! Resolving insolvency is the reform with more impact on productivity growth.


4. Outcome


Laggards also benefit, in some cases directly…


4. Outcome


… and in all cases via diffusion mechanisms

DTF

(β2)

∆ TFP Frontier

(β1)

Spillover effects

to other firms


5. Conclusions


Structural reforms boost productivity growth for frontier firms

While for laggards the impact is not necessarily direct,…

…it is always present via diffusion mechanisms, which are working properly

6. Avenues for further work


Firms’ heterogeneity (age; dimension; etc.) may also explain the impact of reforms?

Why do we have a negative impact of network reforms?

How does the diffusion mechanism operates (e.g. linking with agglomeration economies)?

Thank you

Ministry of Finance – Portugal 17

[email protected]

Structural Reforms


Product Market Reforms

Energy • Liberalization of the energy and gas market • Measures to reduce and eliminate the tariff debt and to limit price increases (e.g. special levy on energy

operators, social tariff of electricity)

Housing • New Urban Lease Act, Renovation Works and Urban Rehabilitation Laws that introduced transition periods

for the convergence of rents and a negotiation mechanism between landlords and tenants • Setup of a working group for the monitoring of the rental market in Portugal and implementation of

measures to fight tax evasion

Services • Implementation of the Services Directive • Liberalization of regulated professions’ access and exercise

Telecommunications • Lowering of mobile termination rates • Transposition of EU Directives increasing the sector’s competitiveness • Privatization of postal services company (CTT)

18

1. Structural Reforms


Product Market Reforms (cont.)

Transports • Strategic Plan for Transports and Infrastructures 2014-2020 • Privatizations (e.g. ANA, TAP, CP Carga) • Ports’ reform (e.g. elimination of the TUP Carga tax, reform of the ports’ labour law (ports’ labour legal

framework), renegotiation of port terminal concession contracts)

Labour Market Reforms

Working Time arrangements • Increase of working time flexibility and of working days (vacations up to 22 days, minus 3, and 9 pubic

holidays, minus 4) • Introduction of an individual bank of hours • Collective bank of hours

Individual dismissals • Reduction of restrictions to individual dismissals: based on performance

Wage setting • Restrictions on automatic extension of collective agreements: based on representativeness of employer’s

association • Trade Unions can delegate on working councils in corporations with more than 150 employees

19



Labour Market Reforms (cont.)

Severance Payments • Reduction of severance payments to align with the EU average: from 30-36 to 12 days, with a 12 months

maximum • Implementation of a compensation fund to finance severance payments

Unemployment benefits • Unemployment subsidy entitlement period reduced from a maximum of 38 months to 26 months • 2.5xIAS (3xIAS before) with a 10% reduction after 6 months • Reduction of the minimum contribution period to 12 months (15 before) • Extension to self employed (with more than 80% of wage coming from one employer)

Public Sector • Approved the new legislation on working time, geographical mobility and voluntary termination of public

labour contracts

Active Labour Market Policies (ALMPs) • Streamlining of active labour market policies: more effective in supporting job creation, strengthening

activation and offering better training opportunities

20



Judicial Reform

• Adoption of a new arbitration law based on international best practices; • Approval of a new Code of Civil Procedure empowering judges to expedite cases, promote pre-court

settlement and enforce statutory deadlines

• New Competition Law aligned with EU law on merger control and strengthened power of Competition • Creation of a specialized court in property rights and competition

• New Insolvency Code based on the international best practices, similar to the US Chapter 11 • Special Revitalization Procedure (PER) and Companies’ Recovery System through Extrajudicial Agreements

(SIREVE) to help companies in serious financial distress or in a imminent insolvency situation

• Adoption of a new Judiciary Map • Streamlined court network and implementation of a modern court and judge performance management

21

Education

• Implementation of the increased number of compulsory education years • Enhanced vocational and professional training, in close cooperation with firms • Incentives for pedagogical and organizational autonomy of schools • Life-long training for teachers and reinforcement of the scientific component in the training activities • Enhanced external evaluation and transparency with examinations in the end of all educational cycles • Development of a system to anticipate the need for qualifications, identifying priorities areas • Revision of the school curricula



Fiscal Reforms

Organization of Public Administration • Review of public employment legislation • Regulate the creation/functioning of all public entities (e.g. foundations) • Reorganization of local administration Public Financial Management • Overhaul of Regional and Local Financing Laws • Design and implementation of new commitments law • Strategies for arrears’ clearance • New budgetary framework law Tax Administration • CIT reform, PIT reform, Green Tax reform • Improved efficiency and effectiveness of tax collection • Creation of the Large Taxpayers Office SOEs and PPPs • Continued privatization process • Enhanced efficiency of SOEs and restoration of their financial sustainability • Containment of fiscal risks resulting from the large use of PPPs and review of the PPPs’ contracts Quality of the Public Spending • Review of public procurement code and implementation of Portal Base • Improved efficiency and effectiveness in the health care system

22

Productivity and structural reforms

Economy & Finance

Transcript of Productivity and structural reforms