Download - 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
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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
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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.
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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
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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
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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.
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ACTUAL, EQUILIBRIUM UNEMPLOYMENT RATES AND NAIRUS
−−− Equilibrium unemployment rate — Unemployment rate — NAIRU
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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
+
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PERSISTENCE OF UNEMPLOYMENT SHOCKS1970 - 2007
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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
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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
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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
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