Industrial restructuring in the new Member States

Policy conclusions

A lpham etrics

Broad aims of policy:

• to facilitate and support the structural changes stemming from the transition and economic development

• to alleviate the adverse effects of structural change on individuals who lose their jobs and have most difficulty in finding new ones

• to tackle the problems in the regions where declining activities, especially in agriculture and industry, are disproportionately located

To achieve these aims requires a package of measures targeted:

• on individuals to improve their employability

• on regions to strengthen their prospects of economic development

Such measures are the main focus here since they follow directly from the analysis

They are not the only measures which need to be pursued. Other policies are equally important including in particular:

• macroeconomic policies for sustaining growth

• environmental policies which ensure growth is sustainable

• social security policies which protect those unable to work or who are in retirement

The policies considered here consist of measures:

• to improve systems of education and training to be more in line with labour market needs

• to help the unemployed and other disadvantaged find work

• to provide support for the creation of new businesses and the growth of SMEs

• to increase working-time flexibility and increase opportunities for part-time working

...

…• to encourage FDI and to increase the

attractiveness of weaker regions for foreign investors

• to tackle structural weaknesses in regions and other obstacles to achieving a more balanced pattern of regional development and employment

Making education and training more responsive to labour market needs by:

• increasing the numbers who go on from upper secondary to tertiary education

• improving initial training programmes so that they are less focussed on specific occupations

• reducing the small but significant numbers who drop out of education without adequate qualifications

• expanding the numbers participating in continuing training

Strengthening labour market policies through:

• training programmes to increase the employability of the unemployed, especially long-term unemployed

• education and training and guidance and support for disadvantaged on labour market, especially ethnic minorities

• improving the efficiency of public employment services

Encouraging the development of SMEs through:

• promoting the creation of new firms and helping them grow

• ensuring their access to finance and advice and guidance on management techniques, marketing, training, innovation and so on

• stimulating closer links between SMEs and the research community so as to exploit new ideas and know-how

Increasing working-time flexibility and part-time employment in order to:

• make it easier for people to participate on the labour market

• facilitate greater flexibility in the supply of services and so stimulate their growth

• increase employment rates

But this should not be at the expense of reducing full-time jobs and lowering income levels

Reducing regional imbalances - key trends:

• Concentration of economic activities, advanced services and FDI in capital region

• Employment gains in basic services cannot compensate job losses in agriculture and manufacturing in other regions

• Increasing problems in rural areas, since employment in agriculture declines markedly

• High disparities in educational attainment• Disproportionate job shortages for low skilled

Key questions:• Should regional policy counter agglomeration

forces by transferring capital from the centre to the periphery to equalise infrastructure endowments?

• Or should it reinforce agglomeration forces e.g. by strengthening interconnections between centre and periphery and by fostering regional labour mobility?

• Or should it adopt an intermediate approach, which tries to develop and interconnect multiple centres, develop peripheral regions, and encourage regional labour mobility?

Developing physical infrastructure :

• Convergence of infrastructure does not necessarily imply economic convergence

• Select projects, which facilitate trade within regions and pair-wise multilateral interconnections, not hub-and-spoke interconnections

• Transport infrastructure should be improved to facilitate commuting and other regional labour mobility

Fostering interregional labour mobility

• Ambiguous impact of regional labour mobility: – reduces regional (un-)employment differences

and increases allocative efficiency– enforces regional imbalances by emigration of

skilled labour– Indeed, unemployed and skilled workers tend

to move more than proportionally

• Case for regional labour mobility can be made from a labour market perspective

• Regional labour mobility is low in NMs at present

Fostering interregional labour mobility:

• Investing in roads, railways and other public transport

• Increasing the supply of housing• Improving information on job opportunities• Training and life-long-learning in order to

improve transferability of human capital• Reducing incentives to stay out of labour force• Subsidising labour mobility (e.g. tax breaks)

Reform of labour market institutions?

• Decentralised wage-setting in all ACs• Minimum wages not effective in most ACs• Responsiveness of wages to regional shocks

relative high• Thus, policies should focus on regional

development and regional labour mobility rather than on further decentralisation of labour market institutions

Attracting FDI - the role of FDI:

• FDI and multinational enterprises (MNEs) already play an important role in terms of GDP and employment in most NMs

• MNEs create jobs, provide training and pay higher wages

• MNEs transfer technology, skills and managerial knowledge

• But FDI is highly concentrated in capitals and some bordering regions in the NMS and so reinforces regional disparities

Key questions:

• How to attract FDI?

• How to allocate FDI more equally across regions?

• How to increase the benefits from FDI?

Developing framework conditions for attracting FDI:

• Fiscal incentives cannot offset economic incentives from agglomeration, market size, a well-trained and diversified labour force, physical and technical infrastructure

• It is doubtful whether fiscal incentives to relocate FDI into peripheral regions create net social gains

• Finance should therefore be channelled into improving framework conditions

Location marketing and information to attract FDI:

• Reduces search costs by providing timely and adequate information, especially to small investors

• Coordinates and bundles regional information

• One-stop-shops in one investment promotion agency (IPA), e.g. CzechInvest

• Location marketing and provision of information is a low-cost measure with high economic returns

Spillover effects from MNEs to domestic firms:

• Main channel for technology transfers are supplier linkages in the NMs

• Many other channels are blocked (e.g. worker mobility)

• Need to support supplier linkages more

• Need to develop other channels by establishing industrial clusters of MNEs and local firms