Growth Enhancing Reforms: The Employment, Skills and

Innovation Agenda

Dr. Marcin PiatkowskiSenior Economist

The World Bank, Warsaw

Budapest, March 30, 2011

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Main messages

Post-crisis economic growth in the EU-10 is likely to be

lower than before the crisis

Structural reforms could accelerate growth

The reforms should focus on:

Raising employment

Improving skills

Enhancing technology absorption and innovation

Post-crisis growth likely to be lower

3

Source: World Bank based on the IMF and Eurostat

Figure: GDP Growth Rates in EU-10, EU-15 and the pace of convergence, 2005–2012, in percent

-6

-4

-2

0

2

4

6

8

2005 2006 2007 2008 2009 2010 2011 2012

EU-15 EU-10 Speed of convergence

Also relative to non-EU countries

4

Source: IMF and Eurostat

Figure: GDP Growth Rates in EU-10, EU-15 and the World, 2008–2012, in percent

Key issue: Low employment rates

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Source: Eurostat

Figure: Average Employment Rates in EU-10 and EU-15 Countries, 2000–09

55.0

60.0

65.0

70.0

75.0

80.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EU10

EU15

Bulgaria

Czech Republic

Estonia

Latvia

Lithuania

Hungary

Poland

Romania

Slovenia

Slovakia

Especially among the elderly and women

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Source: World Bank, Eurostat

0

10

20

30

40

50

60

70

80

90

100

Y20

_2

4

Y25

_2

9

Y30

_3

4

Y35

_3

9

Y40

_4

4

Y45

_4

9

Y50

_5

4

Y55

_5

9

Y60

_6

4EU15

EU10

NL

0

10

20

30

40

50

60

70

80

90

100

Y2

0_

24

Y2

5_

29

Y3

0_

34

Y3

5_

39

Y4

0_

44

Y4

5_

49

Y5

0_

54

Y5

5_

59

Y6

0_

64

EU15

EU10

NL

Figure : Employment Rates by Age in EU-10, EU-15, and the Netherlands, 2009 (percent)

Panel A: Male Panel B: Female

Also in the euro zone

Source: Allard and Everaert (2010)

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Higher employment of women and the elderly represents the highest economic potential

Source: World Bank

Figure : Poland: Effect of 10% Fall in Inactivity on Total Employment Rate (by Age and Gender), 2008

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

0,40

0,45

0,50

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

percentage point

age group

Men Women

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Which could boost economic growth

-1

0

1

2

3

4

5

6

7

Germany United Kingdom Lithuania Korea Chile Spain

pe

rce

nt

Increase in value added if inactivity among older workers in Poland were reduced to the level of selected countries

as % of GDP2008

Women

Men

Source: World Bank

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Selected Policy Recommendations

Enhance the productivity and employability of older workers through

focused training programs and private sector involvement (such as

Germany’s Initiative New Quality of Work)

Increase retirement age and decrease worker disincentives resulting

from pre-retirement benefits

Rationalize disability pensions

Reduce tax wedge

Encourage higher female labor force participation and evaluate pro-

natalist and others policies in this context

Promote active labor market policies

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Key issue: low skills leading to mismatch

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Source: World Bank

Figure : Newly Created Jobs in Poland Require Different Skills from Old Jobs, Giving Rise to the Skills Mismatch

Need to adopt an integrated approach

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Source: World Bank

Figure : Implementing STEP (Skills Toward Employment and Productivity) as an Integrated Set of Programs Across the Life Cycle

Selected Policy Recommendations

Expand early childhood development programs to universal

coverage

Build a strong skills foundation for all through ambitious

approaches to schooling

Strengthen access to and efficiency of tertiary education

through higher education financing reform and data

collection as a basis for system steering (tracer studies)

Establish and strengthen lifelong learning systems

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Key issue: Inefficient R&D spending

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Source: Economic Papers 382, DG Economic & Financial Affairs, July 2009. 2

Figure: Assessment of the Amount and Quality of Public R&D Spending in EU-27

Low share of private sector R&D spending

15

Gross domestic R&D expenditure, by sector of performance, 2008

Source: Eurostat

Also in the euro zone

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Source: Allard and Everaert (2010)

Inefficient public research institutions in EU-10

17

Figure : Number of Annual Publications per RDI Staff in Selected EU-10 and EU-15 Countries

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

PA

RC

***

SR

I***

Sin

tef

TN

O

Fra

un

ho

fer

Ele

c-2

*

Mix

ed

VT

T

ICT

Ars

en

al*

*

Sh

ip-1

Sp

ace

Occu

p

Bio

-3

Me

ch

-2**

Ele

c-1

**

Me

ch

-2

pu

blic

atio

ns /

sta

ff

Source: Goldberg, Goddard, and Kuriakose 2010 using Science Citation Index.

Higher and more efficient R&D would raise GDP

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Table : Overall Effects on GDP Levels of Achieving Lisbon Targets in Selected EU-27 Countries by 2025

Selected Policy Recommendations

Redesign public R&D funding systems to emphasize

applied research and collaboration with industry

Reform state-owned research institutes, including through

commercialization and employee-led privatization, to better

align their outputs with the needs of industry

Strengthen the public institutional framework for R&D and

innovation

Increase financing for start-up and innovative companies

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THANK YOU!

www.worldbank.org.pl

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