Policy Discussion

Joint EC/OECD Seminar, Brussels, 27-28 November 2014

Hans-Peter Klös, Cologne Institute for Economic Research

Stylized „employment production function“

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Employmentby quantity and quality

Tariffparties

Government Companyparties

Wage bargainingDemography

wage agreements

Alliances for workCoverage

of collectiveagreements

Labor Law

Social security law

Taxes and Socialsecurity contributions

Labour market policy

Employment regulation Wage regulation

Vocational Educationand Training

Demographypolicy

Human ResourcesManagement

Management andworker representatives

Compensationpolicy

Employers' /Trade associations

Trade unions

Source: Cologne Institute for Economic Research

Major challenge GDP-Performance, …Change in real GDP, year-to-year, in percent

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Source: EU, European Economic Forecast, Spring 2014

-0,7-0,4

3,2

-0,4

0,1

2,9

1,2

1,6

3,5

1,72,0

3,8

-1

-0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

Euro Area EU World

2012 2013 2014 2015

… unemployment rate …Unemployment as percent of labour force, 2013

0

5

10

15

20

25

30

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* Source: ILOSTAT, 2014

… or job quality?Relationship between job quality and job quantity

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Source: OECD Employment Outlook 2014

It depends – because …

… priorities are path-depending and changing.

… various transmission channels are influencinglabour market outcomes.

… each country has idiosyncratic strenghts andweaknesses.

… institutional settings are the main driver ofdifference in labor market-KPI‘s, both in terms ofquantity and quality.

… different „paradigms“ pose different challenges.

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„Paradigm I“: OECD-Framework forstructural reformsCountry groupingsCountries Main challenges Strengths

Group 1 ESP, GRC, ITA, PRT, SVN High structural unemployment, lowcompetitiveness

Productivity levels close to average

Group 2 CZE, EST, HUN, IRL, ISR,POL, SVK

Significant productivity gap, high long-term unemployment, low internal mobilityan participation of certain groups

Flexible wage adjustments, highpercentage of population with at leastsecondary education

Group 3 DNK, NOR, NLD, SWE Low average hours worked andoverheated housing market

Good productivity level, above averageshares of population with tertiaryeducation

Group 4 AUT, BEL, FIN, FRA, LUX Low participation of older workers andpersistently high unemployment

Good productivity level, relatively highand broadly-based business R&Dintensity

Group 5 AUS, CAN, CHE, GBR,NZL, USA

Low productivity growth, high variance ineducation outcomes and healthcare costs

High investment in knowledge-basedcapital and good quality tertiary education

Group 6 DEU, JPN, KOR Fast population ageing, low participationof woman, relatively weak productivity inservices

High overall employment rates, strongexport base, including of capital goods

Group 7 BRA, CHN, CHL, IDN, IND,MEX, RUS, TUR, ZAF

Widespread informality, uneven access toquality education, infrastructurebottlenecks

Strong potential for productivity catching-up, fast-growing labour force

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Source: OECD, Economic Policy Reforms 2014 - Going for Growth Interim Report

„Paradigm II“: OECD-Framework for job qualityBroad outcome measures of job quality and their subcomponents

Dimensions Aggregate outcomemeasure of jobquality

Subcomponents (at the individual level) Main labour market andsocial policies that affectjob quality

Earningsquality

Earnings index takinginto account bothearnings level and itsdistribution(inequality).

Level of earnings. Wage setting systems.In-work benefits schemes.Minimum wage.

Labourmarketsecurity

Expected earningsloss associated withunemployment.

Unemployment risk:- Risk of becoming unemployed.- Expected duration of unemployment.

Insurance against unemployment risk:- Eligibility to unemployment benefits.- Generosity of benefits (replacement rates.)

Employment protectionlegislation.Tax and benefit systems.Active labour marketpolicies.

Quality of theworkingenvironment

Proportion of workersexperiencing job strain(i. e. imbalancebetween workstressors andworkplace resources).

Work-related stress factors:- Time pressure at work.- Exposure to physical health risk factors.- Workplace intimidation.

Support and resources to accomplish job duties:- Work autonomy and learning opportunities.- Good management practices.- Good workplace relationships.

Working-time regulations.Health-related labour laws.Sickness insuranceschemes.Occupational health careservices.Labour inspection bodies.Vocational training.

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Source: OECD, Employment Outlook 2014

Synthesis: competing or complementary?

Regaining more growth and employment requiresbalanced and targeted structural reforms.

Structural reforms could adress quality issues aswell.

Labor market participation is a stepping stone forwell-being.

Trade-offs between quantity and quality can onlypartially be offset.

Improving educational outcomes seems to be a highroad for matching quantity with quality.

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