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Structural reforms for long-term growth. March 18, 2013. Zuzana Šmídová, OECD. What drives economic growth?. Uneven convergence in labour productivity levels over past decade. Difference vis-à-vis upper half of OECD countries GDP pcLabour utilisationProductivity. - PowerPoint PPT Presentation
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Structural reforms for long-term growth
March 18, 2013Zuzana Šmídová, OECD
What drives economic growth?
2
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
LabourCapitalHuman cap-italMFPGDP per capita
Aver
age
% c
hang
e 20
00-2
011
Note. To ensure that the percentage gap in the components of GDP add up to GDP per capita the decomposition is done in log point differences since the decomposition is multiplicative. GDP per capita is equal to the product of the components MFP, Human capital, (Physical capital/GDP) /(1- )α α and employment/population.
Source: Long-term Growth Scenarios, OECD Economics Department Working Paper No. 1000, forthcoming
Uneven convergence in labour productivity levels over past decade
3
0 5 10 15 20 25 30 35 40 45 50 55 600
2
4
6
8
10
12
14
Chart Title
Level, thousands of US dollars, 2001
Average of growth rates, 2001-11
OECD average
OECD average
Labour productivity is measured as GDP per hour worked for OECD countries and Russia and as GDP per employee for the remaining BRIICS. Source: OECD National Accounts Statistics (Database); OECD (2012), OECD Economic Outlook No. 92: Statistics and Projections (Database); OECD, Employment Outlook (Database).
Difference vis-à-vis upper half of OECD countries GDP pc Labour utilisation Productivity
4India
Indonesia
China
South Africa
Brazil
Mexico
Turkey
Russia
Korea
Spain
Italy
Japan
United Kingdom
France
Germany
Canada
Australia
United States
-100 -80 -60 -40 -20 0 20 40 -100 -80 -60 -40 -20 0 20 40
India
Indonesia
China
South Africa
Brazil
Mexico
Turkey
Russia
Korea
Spain
Italy
Japan
United Kingdom
France
Germany
Canada
Australia
United States
-100 -80 -60 -40 -20 0 20 40
2011 2007Series3
How to improve labour utilisation?
5
6
Long term unemployment a concern since the crisis
Mexico
Israel
Canad
a
New Zeal
and
Sweden
Norway
Austral
ia
Finlan
d
Turkey
Austria
Icelan
d
Denmark
Luxem
bourg
United
States
Switzerl
and
OECD
United
King
dom
Netherl
ands
JapanPola
ndFran
ceSpa
in
Czech R
epub
lic
Belgium
Hunga
ry
German
y
Portug
al
Sloven
ia
Estonia Ita
ly
Greece
Irelan
d
Slovak
Rep
ublic
0
10
20
30
40
50
60
70
80
Share of people unemployed for more than 12 months in total unemployment
2012 Q2 2007 Q4
Per cent
Source: OECD, Quarterly Labour Market Indicators Database.
Improving labour utilisation• Unemployment benefit schemes
• Active labour market policies
• Labour taxation (second income earners, older workers, AETR, METR, …)
• Labour market regulations and collective wage agreements
• Retirement and disability schemes7
Unemployment benefit schemes
8
Net income replacement rates for unemployment1Net income when unemployed as a percentage of net income when working
Unemployment benefit schemes
9
Active labour market policies
10
Public expenditure on active labour market policies per unemployedPercentage of GDP per capita
Retirement and disability schemes
• Official retirement age vs contributory period
• Unemployment of older workers (50+)
• Drawing a pension and/or working• Working – is my pension increasing?,
what tax, ssc do I pay?• How long will I enjoy the pension
(life expectancy, years spent in healthy life)?
11
Men’s pensionable age in OECD
12
1949 1958 1971 1983 1989 1993 1999 2002 2010 2020 2030 2040 2050
Australia 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 66.0 67.0 67.0 AustralieAustria 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 AutricheBelgium 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 BelgiqueCanada 70.0 69.0 68.0 67.0 66.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 CanadaCzech Republic 60.0 60.0 60.0 60.0 60.0 60.0 60.5 61.0 62.2 63.5 65.0 65.0 Rép. tchèqueDenmark 65.0 65.0 67.0 67.0 67.0 67.0 67.0 67.0 65.0 65.0 67.0 67.0 67.0 DanemarkFinland 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 FinlandeFrance 65.0 65.0 65.0 60.0 60.0 60.0 60.0 60.5 61.0 61.0 61.0 61.0 FranceGermany 63.0 63.0 63.0 63.0 63.0 63.0 63.0 63.5 65.0 65.0 65.0 65.0 65.0 AllemagneGreece 55.0 57.0 57.0 57.0 57.0 57.0 57.0 57.0 57.0 60.0 60.0 60.0 60.0 GrèceHungary 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 64.5 65.0 65.0 65.0 HongrieIceland 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 IslandeIreland 70.0 70.0 70.0 70.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 IrlandeItaly 60.0 60.0 60.0 55.0 55.0 55.0 55.0 57.0 59.0 61.0 65.0 65.0 65.0 ItalieJapan 60.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 JaponKorea 60.0 60.0 60.0 60.0 60.0 62.0 64.0 65.0 CoréeLuxembourg 65.0 65.0 65.0 65.0 65.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 LuxembourgMexico 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 MexiqueNetherlands 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 Pays-BasNew Zealand 65.0 60.0 60.0 60.0 60.0 60.0 61.1 64.1 65.0 65.0 65.0 65.0 65.0 Nlle-ZélandeNorway 70.0 70.0 70.0 70.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 67.0 NorvègePoland 60.0 60.0 60.0 60.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 PolognePortugal 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 PortugalSlovak Republic 60.0 60.0 60.0 60.0 60.0 60.0 60.0 62.0 62.0 62.0 62.0 62.0 Rép. slovaqueSpain 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 EspagneSweden 67.0 67.0 67.0 67.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 SuèdeSwitzerland 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 SuisseTurkey 60.0 45.0 45.0 45.0 45.0 44.0 44.9 48.6 53.1 57.7 62.3 TurquieUnited Kingdom 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 66.0 67.0 68.0 Royaume-UniUnited States 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 66.0 66.0 67.0 67.0 67.0 Etats-Unis
OECD 64.3 63.9 63.9 63.2 62.8 62.5 62.6 62.7 63.0 63.5 64.1 64.4 64.6 OCDE
Table 1.1. Men’s pensionable age in OECD countries, 1949-2050Tableau 1.1. Âge de la retraite pour les hommes dans les pays de l’OCDE, 1949-2050
Labour taxation – average tax wedge
13
Employment protection legislation
14
Protection of permanent workers against (individual)
dismissal
Regulation on temporary forms of
employment
Specific requirements for
collective dismissal
OECD employment
protection index
Australia 1.37 0.79 2.88 1.38Austria 2.19 2.29 3.25 2.41Belgium 1.94 2.67 4.13 2.61Brazil 1.49 3.96 0.00 2.27Canada 1.17 0.22 2.63 1.02Chile 2.59 2.04 0.00 1.93China 3.31 2.21 3.00 2.80Czech Republic 3.00 1.71 2.13 2.32Denmark 1.53 1.79 3.13 1.91Estonia 2.27 2.17 3.25 2.39Finland 2.38 2.17 2.38 2.29France 2.60 3.75 2.13 3.00Germany 2.85 1.96 3.75 2.63Greece 2.28 3.54 3.25 2.97Hungary 1.82 2.08 2.88 2.11Iceland 2.12 1.54 3.50 2.11India 3.65 2.67 0.00 2.63Indonesia 4.29 2.96 0.00 3.02Ireland 1.67 0.71 2.38 1.39Israel 2.19 1.58 1.88 1.88Italy 1.69 2.54 4.88 2.58Japan 2.05 1.50 1.50 1.73Korea 2.29 2.08 1.88 2.13Luxembourg 2.68 3.92 3.88 3.39Mexico 2.25 4.00 3.75 3.23Netherlands 2.73 1.42 3.00 2.23New Zealand 1.54 1.08 0.38 1.16Norway 2.20 3.00 2.88 2.65Poland 2.01 2.33 3.63 2.41Portugal 3.51 2.54 1.88 2.84Russian Federation2.77 1.04 1.50 1.84Slovak Republic 2.45 1.17 3.75 2.13Slovenia 2.98 2.50 2.88 2.76South Africa 1.91 0.58 1.88 1.35Spain 2.38 3.83 3.13 3.11Sweden 2.72 0.71 3.75 2.06Switzerland 1.19 1.50 3.88 1.77Turkey 2.48 4.88 2.38 3.46United Kingdom 1.17 0.29 2.88 1.09United States 0.56 0.33 2.88 0.85
Scale from 0 (least restrictions) to 6 (most restrictions)Employment protection in OECD and selected non-OECD countries, 2008*
How to improve productivity?
• More competition and business environment– easing restrictions for entry to markets
• Increase human capital – education• Improve general allocation of
resources – cuts in state subsidies, better functioning of financial markets
• Framework conditions – general business environment, tax systems, innovation policies.
15
Product market regulation (PMR)
• Indicators measuring PMR de jure, internationally comparable, with historical data
• state control of business enterprises;• legal and administrative barriers to
entrepreneurship;• barriers to international trade and
investment• World Bank’s Doing Business
country ranking, etc. 16
Education
• Graduation rates (university)• Returns to tertiary education• How to get there – secondary
education, school fees, scholarships• Quality of education
– Success in getting a job ( tertiary)– Success in getting to a uni ( secondary)– Primary? PISA tests (15 yr-olds in
match, reading, science, specific modules)
17
Innovation
18
Business expenditure on R&D is uneven across countries Business enterprise expenditure on R&D as a percentage of GDP1
1. 2010 or last available year. 2007 for Greece and Mexico; 2008 for Chile, Iceland, South Africa and Switzerland; 2009 for Australia, New Zealand and the United States; 2011 for Canada, Germany and Italy.Source: OECD, Main Science and Technology Indicators Database.
19
Structural reforms help sustainability, …
The effects of delying the retirement by five years on fiscal gapsChange in underlying primary balance needed to bring debt to 50% of GDP in 2050
Note: The change is from the underlying primary balance projected for 2012.Source: Merola, R. and D. Sutherland (2012), "Fiscal Consolidation: Part 3. Long-Run Projections and Fiscal Gap Calculations", OECD Economics Department Working Papers, No. 934, OECD Publishing.
20
…improve budget balance,
A permanent one-percentage point increase in employment can improve the budget balance by between 0.3 and 0.8 percentage
points
Source: OECD, Economic Outlook 88 Database and OECD calculations.
21
…raise GDP
Difference in the level of GDP in 2050 as compared with baseline scenario for long-term growth
Source: OECD Economic Outlook 91 Long-term Database.
OECD’s Going for growth exercise
22
The pace of reforms has remained high overall
Action on areas covered by GfG recommendations stands at its highest level since
2005
0
0.1
0.2
0.3
0.4
0.5
0.6
Labour utilisation Labour productivity Overall
Responsiveness rate
2005-06 2007-08 2009-10 2011-12 BRIICS
But uneven across countries
24
Particularly high pace of reforms in euro area countries under financial assistance programmes or direct market pressures Including in politically-sensitive areas: labour market
regulations and social welfare systems
Even controlling for these countries, action on priority is highest
Much more moderate pace of reforms in other euro area countries In particular those with a current account surplus
But also in countries with highest living standards (US, Switzerland, Norway)
More active reforms in these countries would help achieve rebalancing, both globally and in the EA
Countries reforming most have also consolidated their budget
Pace of structural reforms against budgetary consolidation over the past two years
AUSAUT
BEL
CAN
CHE
CZE
DEU
DNK
ESP
EST
FIN
FRA
GBR
GRC
HUN
IRL
ISL
ISRITA
JPNKOR
LUX NLD
NOR
NZL
POL
PRT
SVK
SVNSWE
USA
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
-4 -2 0 2 4 6 8 10 12
Responsiveness rate, 2011-2012
Variation in the underlying primary balance as a percentage of potential GDP from 2010 to 2012
In Europe: Emphasis on active labour market and
social policies Reforms to foster job creation, hiring and
labour mobility, incentives to take-up work Reduction of barriers to entry in servicesIn the US:
Active labour market policies Access to quality education and health
insurance 26
2013 Going for Growth priorities
In Japan and Korea: Benefit systems (childcare policies) Duality in employment protection legislation
In lower-income OECD countries and BRIICS: Extending the coverage of social protection Reforming labour market regulation to
reduce informality Improving primary and secondary education
27
2013 Going for Growth priorities
Further reading• Arnold, J., A. Bassanini and S.
Scarpetta (2007), "Solow or Lucas?: Testing Growth Models Using Panel Data from OECD Countries", OECD Economics Department Working Papers, No. 592, OECD Publishing.doi: 10.1787/028487061153
• http://www.oecd.org/eco/growth/going-for-growth-2013.htm
• Employment protection legislation indicators and their impact of employment http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm
• Product market regulation and impact on growth http://www.oecd.org/eco/reform/indicatorsofproductmarketregulationpmr.htm
• Measuring quality of education - PISA http://www.oecd.org/pisa/
28