methodology to assess the progress in lisbon strategy smilovice, 5 th december 2007
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Methodology to assess the progress in Lisbon strategy Smilovice, 5 th December 2007. Alexandr Hobza Unit E-1: Coordination of structural reforms and their macroeconomic implications DG ECFIN, European Commission. Outline of presentation. - PowerPoint PPT PresentationTRANSCRIPT
Methodology to assess the Methodology to assess the progress in Lisbon strategyprogress in Lisbon strategy
Smilovice, 5Smilovice, 5thth December 2007 December 2007
Alexandr HobzaAlexandr HobzaUnit E-1:Unit E-1:Coordination of structural reforms and their Coordination of structural reforms and their
macroeconomic implicationsmacroeconomic implications DG ECFIN, European CommissionDG ECFIN, European Commission
Outline of presentationOutline of presentation
1. Lisbon strategy: structural reform process in Europe
2. Methodology to assess progress with Lisbon Strategy
3. Tracking reforms4.Multi-step methodological approach to
identifying growth-enhancing policies 5. Modelling effects of reforms
Lisbon strategyLisbon strategy
Economic perspectiveEconomic perspective
Need to deal with economic challengesNeed to deal with economic challenges Low growth potential and adjustment capacity Low growth potential and adjustment capacity
(euro area)(euro area) GlobalisationGlobalisation AgeingAgeing Climate changeClimate change
ResponseResponse Macroecomic policies geared towards stability Macroecomic policies geared towards stability
and growthand growth Comprehensive coordinated process of structural Comprehensive coordinated process of structural
reformsreforms
Lisbon strategyLisbon strategy
Historical perspectiveHistorical perspective
Continuation of pre-Lisbon coordination Continuation of pre-Lisbon coordination processesprocesses
Politically driven process – European Politically driven process – European Council meetings and headline targetsCouncil meetings and headline targets
Mid-term review in 2005 and re-launch Mid-term review in 2005 and re-launch of the Strategyof the Strategy
Lisbon strategyLisbon strategy
Procedural perspectiveProcedural perspective
Rationale for coordinationRationale for coordination Coordination of economic policies in EMUCoordination of economic policies in EMU Lisbon: structured coordination based on soft Lisbon: structured coordination based on soft
toolstools Integrated Strategy for Growth and Jobs– new Integrated Strategy for Growth and Jobs– new
governance arrangementsgovernance arrangements National ownership as a solution
Political economy elements (wider participation, more focus, integration of policies)
The national key challenges at the core of the EU strategic approach
Spillovers of structural policies
Policy area Model Simulation assumptions
Overall long-run
effect on GDP in
EU
Average spillover
s (as share of overall effect)
R&D
WorldScan
Increasing R&D intensity from 1.86% to 2.7% in 2010 (partially paid
through a R&D subsidy financed by lump-sum transfers from
households).
3.3% 50%
QUEST IIIIncreasing R&D intensity from 1.86% to
2.54% in 10 years through a R&D subsidy (financed from
consumption tax).
4.8%* 20%
Skills WorldScan
Achieving skill targets set by 2003 European Council. Input into simulation (effects on labour
efficiency from these policies and demographic developments) were
modelled in a special model.
2.1%* 4%
Administrative burden
WorldScanReduction in administrative burden by
25% modelled as a labour efficiency shock.
1.9% 5%
NiGEMReduction in administrative burden by
25% modelled as a shock to mark-up of prices over unit costs.
1.1% 10%
Employment targets
WorldScan Labour supply shocks from achieving the 70% target for employment rate. 7% 4%
Complementarities between reforms
Trhy produktů Znalostní ekonomika Trh práce Finanční trhy Makro
Trhy produktů ***Více konkurence => více
investic do VaV (křivka ve tvaru „U“)
Nižší renty snižují odpor vůči reformám; nižší
regulace na trzích produktů zvyšuje efektivitu
reforem na trzích práce
Větší poptávka po úvěrech => větší příležitosti pro
finanční sektor;
Vyšší růst a nižší inflační tlaky => větší prostor pro
akomodativní makroekonomické politiky;
Znalostní ekonomika
Zvyšování lidského kapitálu => větší
nabídka kvalifikovaných
pracovníků a větší flexibilita při realokaci
zdrojů do nových aktivit
***
Vyšší průměrná úroveň dovedností pracovníků =>
menší potřeba ochrany přes instrumenty na trzích
práce; více inovativních firem => větší poptávka po
práci
Větší poptávka po úvěrech a větší investiční příležitosti
Vyšší růstový potenciál usnadňující formulaci makroekonomických
politik
Trh práce
Lehčí realokace pracovního vstupu =>
reformy trhu produktů jsou efektivnější
Nižší náklady práce a větší flexibilita => lepší prostředí
pro začínající inovativní firmy
***
Větší objem úspor k dispozici; menší
pravděpodobnost osobních bankrotů
Větší flexibilita při stanovování mezd => větší
odolnost vůči šokům a menší tlak na monetární a
fiskální politiku
Finanční trhyNižší cena kapitálu =>
lepší alokace zdrojůDostupnější kapitál pro
high-tech firmy
Lepší pojištění přes finanční trhy => menší
potřeba pro pojištění na trzích práce
***Menší náklady na financování dluhu
Makro
Makroekonomická stabilita => lepší
podmínky pro reformy; méně „crowding out“ soukromých investic
Větší kvalita veřejných financí => realokace
prostředků na výdaje na VaV a vzdělávání
Makroekonomická stabilita => snižují se
přizpůsobovací náklady a snižuje se odpor vůči
reformám; zdravé veřejné finance => větší prostor pro
kompenzaci jedinců tratících na reformách
Makroekonomická stabilita a růst => nižší
pravděpodobnost finančních krizí
***
Economic policy Economic policy coordination in EMUcoordination in EMU
Monetary policyECB
Article 105
Monetary policy stance
Broad Economic Policy GuidelinesArticle 99
Macroeconomic DialogueCologne Resolution
Stability and Growth PactStability/Convergence Programmes
Article 104, Amsterdam Resolution and Council Regulations
Community Lisbon Programme
Macroeconomic conditions Smoothly operating markets, potential growth
Exchange rateCouncil (+ECB/Commission)
Article 111
National Reform Programmes
Budgetary stance
Employment GuidelinesArticle 128
Integrated Guidelines PackageCommission, Council, EP, European Council
Types of policy-Types of policy-making in the EUmaking in the EU
POLICIES FORM OF
COORDINATION
MODE OF
COORDINATION
ACTORS
INVOLVED
PROCEDURES
Monetary policy Single policy (euro area) Single institution ECB
Exchange rate Single policy (euro area)
Coordination in the Council
Council
ECB
Eurogroup
Commission
Competition policy Single policy Implementation by the Commission
Member States Commission Council
SINGLE
POLICY
External trade (customs union)
Single Policy Coordination in the Council
Member States Commission Council
Budgetary policy
(balances)
- Treaty rules
- Commonly agreed rules
and objectives
- Information exchange
- Peer review
Coordination in the Council
Joint fora
Member States
Commission
Council
Eurogroup
Excessive Deficit Procedure
Stability and Growth Pact
Broad Economic Policy Guidelines
HARD
COORDINATION
Internal Market
(structural reforms)
- Rules
- Joint decisions
- Council directives
- Peer review
Coordination in the Council
Member States
Council
Commission
POLICIES FORM OF
COORDINATION
MODE OF
COORDINATION
ACTORS
INVOLVED
PROCEDURES
Policy-mix - Dialogue
- Information exchange
Joint fora ECB
Commission
Council
Eurogroup
Social partners
Macroeconomic Dialogue
Budgetary policy
(quality and sustainability of public finances)
- Commonly agreed
objectives
- Guidelines
- Peer review
Coordination in the Council
Member States
Commission
Council
Eurogroup
Broad Economic Policy Guidelines
Stability and Growth Pact
Labour market policies
(structural reforms)
- Information exchange
- Discussion of best
practices
- Guidelines
- Peer review
Coordination in the Council
Joint fora
Member States
Commission
Council
Social partners
Employment Guidelines
Broad Economic Policy Guidelines
SOFT
COORDINATION
Product and capital market policies
(structural reforms)
- Information exchange
- Discussion of best
practices
- Guidelines
- Peer review
Coordination in the Council
Member States
Commission
Council
Broad Economic Policy Guidelines
Types of policy-Types of policy-making in the EUmaking in the EU
Lisbon strategy: Lisbon strategy: governance governance structurestructure
Overall policy objectives set by Heads of State of Government (Spring European Council) + Integrated Guidelines as a blueprint for policy design
Some common targets, e.g. employment rates of 70% by 2010, to raise spending on R&D to 3% of GDP, reduce administrative burden in complying with regulations by 25% between 2006 and 2010
Member States (not the European Commission) define their key growth challenges and reform commitments
Reform priorities fixed for a three-year cycle, BUT annual reporting and evaluation exercise which leads to country specific political recommendations
Lisbon strategy: A political process supported by economic analysis• Based on the premise an external constraint and peer
pressure can help overcome reform bottlenecks• short-term (concentrated) costs versus uncertain long-
term (dispersed benefits• rent-seeking interest groups can capture policy makers
• Also recognises that there are economic spillovers (trade, internal market) and political economy spillovers (institutional learning, demonstration effects, peer pressure) in coordinating at EU level
• Combination of evidence-based analysis supported by a political process can generate results
• Can take years to “frame” a consensus on the nature/scale of policy challenge, and on the policy reforms needed to tackle them
Work on the Lisbon evaluation methodology
A three-pronged approach
I: Tracking structural reforms
II: Quantifying their impact on growth and jobs
III: Modelling
Practical arrangements
ECFIN working together with other lead DGs, i.e. SG, ENTR and EMPL
Developing analysis working with new Lisbon Methodology (LIME) Working Group attached to the EPC
Method I – trackingstructural reforms
Developing institutional databases on reforms
- LABREF: an operational database of enacted labour market reforms
- MICREF : a database of microeconomic reforms, currently being developed
Reporting tables/grids attached to NRPs
- working with LIME group to streamline format and content
LABREF database
database on enacted labour market reforms in 9 areas covering labour taxation, unemployment and social benefits, ALMPs, EPL, disability and early retirement schemes, pension systems, wage bargaining, working time organisation, immigration and mobility.
completed for 2000-2006 period (except BU and RO)
LABREF database
Measures contained in LABREF by reform area: 2000-2006(% on total reforms in each geographical area)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
LabourTaxation
Benefits ALMPs EPL Pensions WageBargaining
WorkingTime
ImmigrationMobility
New Members States
euro-zone 12
EU15-excl euro zone
MICREF database
database of microeconomic reforms developed in cooperation between DGs ECFIN/ENTR and EPC with assistance from JRC
includes policies such as market integration, competition policy, sector specific regulation, start-up conditions, business environment, R&D and innovation, education)
Further steps
- back-dating to 2004/5 by Spring 2008
- development of Internet interface underway
Reporting tables
Description of measure
Rationale of measure
Timeline start
Timeline end
Status Comment (voluntary)
Integrated Guidelines
Functional Classificati
on
Key challeng
es
REC. and Points to
watch
Euro area REC
Comment (voluntary)
Follow up
proced-ures
Direct budget
cost
Eurostat indicator
Impact variable
Input indicator
Output indicator
Measure 1
Description module Classification module Impact and follow-up module
<------------------------------------------------ ------ ESSENTIAL --------------------------------------------> <---------------- DESIRABLE ------------->
Method II – analysing the impact of reforms on growth and jobs
Starting point is a focus on growth drivers through decomposition of GDP
- quantify the sources of per capita GDP gaps in the EU
- quantify the determinants of growth over 2000-2005 using a growth accounting approach decomposed into 12 components (especially detailed on the labour market side)
The purpose is
- to provide an analytical benchmark for analysing the impact of structural reforms on growth and employment
- verify that policies are focussing on the most important growth drivers
Growth determinants and policy measures
HDP na hlavu
Využití pracovní síly (odpracované hodiny na hlavu)
Produktivita práce (HDP na odpracovanou hodinu)
Odpracovanéhodiny na
pracovníka
Kapitálová intenzita (kapitál na odpracovanou
hodinu)
Míra zaměstnanosti
Souhrnnáproduktivita faktorů
Strukturální míra nezaměstnanosti
Reformy na trzích práce
Integrace finančních trhů
Opatření pro znalostní ekonomiku
Reformy na trzích zboží a služeb
Míra participace na trhu práce
Čistý technologický
pokrok
Kvalita pracovnísíly (složenídovedností)
Kvalita kapitálu(složení a kvalita
aktiv)
HDP na hlavu
Využití pracovní síly (odpracované hodiny na hlavu)
Produktivita práce (HDP na odpracovanou hodinu)
Odpracovanéhodiny na
pracovníka
Kapitálová intenzita (kapitál na odpracovanou
hodinu)
Míra zaměstnanosti
Souhrnnáproduktivita faktorů
Strukturální míra nezaměstnanosti
Strukturální míra nezaměstnanosti
Reformy na trzích práce
Integrace finančních trhů
Opatření pro znalostní ekonomiku
Reformy na trzích zboží a služeb
Míra participace na trhu práce
Míra participace na trhu práce
Čistý technologický
pokrok
Čistý technologický
pokrok
Kvalita pracovnísíly (složenídovedností)
Kvalita pracovnísíly (složenídovedností)
Kvalita kapitálu(složení a kvalita
aktiv)
Kvalita kapitálu(složení a kvalita
aktiv)
Method II – a multistep approach
Step 1: Identifying the components of GDP where MSs are underperforming (in terms of level and growth) relative to a given benchmark through GDP accounting.
Step 2: Identifying the conceptual links between policy interventions, a list of indicators and the underperforming GDP components.
Step 3: Using performance and policy indicators to identify the most problematic policy areas/issues, which are likely to be responsible for the income gaps/weak growth components.
Step 4: Bringing together the results of step 1 (GDP accounting) and step 3 (indicator-based assessment of policy area performance) and supplementing them with country-specific expertise and data
Step 5: Present the result in a policy context (link with NRP and Key Challenges
Step 1: Growth accounting
Standard disaggregation DG ECFIN refined disaggregation
Degree of exogeneity or endogeneity
Working age population
Nativepopulation
Exogenous
Net migration Partially endogenous
Working age population share in total population
Exogenous
Labour market Participation
Youth Participation Largely endogenous
Male prime-age participation Partially endogenous
Female prime-age participation
Partially endogenous
Older-worker participation Largely endogenous
Unemployment rate Unemployment rate Partially endogenous
Average hours worked per person
Average hours worked per worker
Partially endogenous
Capital deepening (capital per hour worked)
Labour quality Largely endogenous
Capital deepening(capital per low-skilled labour hour worked)
Partially endogenous
•Total factor productivity
Total factor productivity Endogenous
Step 1 – Growth accounting
)1(1
urPARTSWPHLH
KQA
POP
LH
LH
Y
POP
YL
Y total GDPH the annual hours worked per person employedL total employment, which the product of POP, PART and (1-ur) α the share of labour in total value added, which is set equal to 65% in all countriesPOP total populationSWP the working age population share (15-64) in total population PART total labour force participation rateur the overall unemployment rateQL indicator of labour qualityK the stock of capitalTFP total factor productivity as a residual
Step 1 – Growth accounting
..
.
1
,, 2002
2002
HighMediumLowS L
StS
tHtMtLt W
WE
EEEQ
Where Es and Ws are respectively employment and hourly wage (without overtime) for each educational attainment (ISCED-3).
To capture the change in average quality of labour, we compute the average relative productivity of a person employed compared to those with low educational attainment:
Step 1 – Growth accounting
1
111 )()()()(L
LLLL QHL
KQHLAKQHLQHLAKQHLAY
1
1
1
1
11))(1(
t
turPARTSWP
t
tmMPOPHQQHLKAY ur
urggg
m
mgggggggggg
LL
g denotes a rate of growth POP-M native populationm net migration rate
Explaining the gaps in GDP per capita across countries
Effect of labourproductivity
1) Average of the best 5 performing EU countries (Luxembourg, Ireland, Denmark, Netherlands and Austria)
2000 - 2005Percentage gap with respect to
EU-5 1) GDP per capita(GDP per hour worked)
Effect of labourresource utilisation
(Hours worked per capita)
Change in gap
-80 -60 -40 -20 0 20 40 60 80 100
Luxembourg
Ireland
Denmark
Netherlands
Austria
Belgium
United Kingdom
Sweden
Finland
Germany
France
EU-15
Euro area
Italy
EU-25
Spain
Cyprus
Greece
Slovenia
Czech Republic
Portugal
Malta
Hungary
Estonia
EU-10
Slovak Republic
Lithuania
Poland
Latvia
-80 -60 -40 -20 0 20 40 60 80 100 -80 -60 -40 -20 0 20 40 60 80 100 -10 -5 0 5 10 15 20
Czech Republic: Growth Czech Republic: Growth accountingaccounting
Gap with EU15 in level in 2005
-60 -40 -20 0 20 40
GDP per capita
Labour Productivity
Labour Resource Utilisation
Capital Deepening
Total Factor Productivity
Labour Quality (Education)
Share of Working age Population
55-64 Participation
Unemployment Rate
Average Hours Worked
Native Population
Net Migration
Youth Participation
25-54 Male Participation
25-54 Female Participation
Growth decomposition 2000-2005
-2 -1 0 1 2 3 4 5
GDP per capita
Labour Productivity
Labour Resource Utilisation
Capital Deepening
Total Factor Productivity
Labour Quality (Education)
Share of Working age Population
55-64 Participation
Unemployment Rate
Average Hours Worked
Native Population
Net Migration
Youth Participation
25-54 Male Participation
25-54 Female Participation
Step 1 – Growth accounting
New features of the growth accounting
- very detailed decomposition- accounting for the quality of labour- contribution of migration
Caveats
- descriptive approach, does not inform about causality - results affected by assumptions of technical nature – e.g. Cobb-Douglas PF, no economies of scale, calibration of labour share (though widely accepted)- growth and its components can be affected by the business cycle- developments in each component might be difficult to interpret in practice
Step 2 – Making the link with policies
Need to link growth accounting with policy interventions and performance on indicators
need to draw on a wide body of economic research
The structure of the fiches
Definition and scope of the policy area Impact on growth components (theoretical mechanism
and transmission channels); direct and indirect Evidence and estimated elasticities in recent literature Possible spillovers and complementarities with other
policy areas Non-exhaustive list of relevant indicators
Step 2 – Making the link with policies
Labour market
Product market
Innovation and knowledge
Macroeconomy
Active labour market policies (training, job-search assistance, well-designed and targeted programmes
Openness to trade and investment
R&D, innovation policies and ICT
Long-term sustainability of public finances and welfare policies
Making work-pay: incentive to work through the interplay of tax and benefit system
Barriers to entrepreneurship and business environment
Education and life long learning
Stability oriented macroeconomic policies
Reforming labour taxation to stimulate labour demand
Competition-friendly policy framework
Relaxing job protection while combating labour market segmentation/dualisation
Efficient financial markets and access to finance
Working time organisation
Specific labour supply measures for women
Specific labour supply measures for older-workers
Improving wage bargaining and wage-setting policies
Immigration and integration policies
Labour mobility (geographical and sectoral)
Example: LS of older Example: LS of older workersworkers
Policy indicatorsImplicit tax on continued work (Net change in pension wealth if retiring at 65 instead of 62 -2004 (-)
Coverage of early retirement 2004 (-)
Life-long learning: Participation of the population aged 55-64 in education and training 2000-2006 (+)
Performance indicators Average exit age from the labour force 2001-2005 (+)
Employment rate of older workers aged 55 to 64 - Women (%) 1992-2006 (+)
Employment rate of older workers aged 55 to 64 - Men (%) 1992-2006 (+)
Older-worker participation
Specific labour supply measures for older-workers)
Policy and performance indicatorsGDP components
Policy area
Step 3: Scoring systemStep 3: Scoring system
Score = (Indicator-EU15 average)/Standard deviation *10
• trimming the score (3 stdev.) so as to avoid giving trimming the score (3 stdev.) so as to avoid giving too much weight to outlierstoo much weight to outliers
• not rounding the final value in the maquette but not rounding the final value in the maquette but presenting it without decimalpresenting it without decimal
• reporting the EU15 average and the stdev. as well reporting the EU15 average and the stdev. as well as the distance to alternative benchmarks (EU27, five as the distance to alternative benchmarks (EU27, five best values, EU5, the Lisbon target)best values, EU5, the Lisbon target)
Step 3: Scoring systemStep 3: Scoring system
++++
++
00
00
- -- -
--
EU15 Weighed average EU15 Weighed average E(X)E(X)
E(X)+0.4 E(X)+0.4 (X)(X)
Average+one stdev. Average+one stdev. EE(X)+ (X)+ (X)(X)
E(X)- 0.4 E(X)- 0.4 (X)(X)
E(X) - E(X) - (X)(X)
16%16%
19%19%
31%31%
19%19%
16%16%
=2=2
=1=1
=0=0
=-2=-2
=-1=-1
Under Under normal normal distribution distribution EU15EU15
Table 1: Application of the new scoring system to step 1 (level and change)f GDP accounting level assessment vis-à-vis EU15 Capital Total Initial Share of 55-64 Unemploy Average Native Net Youth 25-54 25-54
GDP per capita Labour Labour Deepening Factor education Working age Participation ment Hours Population Migration Participation Male Female
productivity utilisation Productivity (Labour quality) Population Rate Worked (fertility rate) (share of Participation Participation
Score 0.00 foreign pop)
BE 8 21 -16 2 28 -12 -10 -14 -5 -6 2 9 -12 -3 2BG -30 -30 28 -30 -30 -6 21 -9 -4 30 -30 -27 -18 -30 3CZ -28 -30 30 -30 -21 -1 30 0 8 22 -6 -20 -12 20 10DK 13 3 12 -15 13 -5 -4 16 8 -3 8 -7 18 -7 15DE 1 5 -6 8 -5 12 4 5 -3 -12 -5 11 2 10 6EE -30 -30 28 -30 -25 3 13 12 -3 28 -30 30 -12 -29 12IE 23 14 7 4 18 -10 15 6 9 2 10 -1 5 -4 -9GR -21 -22 8 3 -16 -10 8 -4 -7 30 -30 2 -13 18 -11ES -8 -9 3 -10 1 -8 19 -1 -3 4 -5 6 0 -1 -10FR 0 12 -15 10 14 -10 -14 -7 -6 -4 12 0 -8 9 8IT -5 -7 5 2 1 -12 -3 -15 0 14 -6 -10 -13 -11 -19CY -19 -24 16 -30 -1 -9 17 5 8 7 -3 30 -5 25 2LV -30 -30 18 -30 -25 -8 21 7 -4 20 -6 30 -9 -27 11LT -30 -30 13 -30 -19 -7 12 6 -2 19 -7 -24 -20 -21 17LU 30 30 30 -3 30 1 4 -15 30 -4 5 30 -17 26 -5HU -30 -30 7 -30 -22 8 19 -13 1 27 -6 -22 -19 -30 -5MT -30 -22 -10 -29 -2 -14 29 -15 2 9 6 -15 6 6 -30NL 13 13 -3 8 8 0 8 1 9 -15 6 -9 21 11 6AT 11 -2 18 1 -8 10 14 -14 8 3 -3 14 10 3 7PL -30 -30 2 -30 -24 3 30 -17 -28 26 -30 -20 -11 -30 2PT -30 -30 13 -30 -15 -7 6 7 0 6 -3 -18 -4 -1 10RO -30 -30 15 -30 -30 2 27 -7 -2 30 -5 -28 -15 -30 -7SI -22 -24 11 -30 -13 3 30 -15 3 8 -7 -19 -7 -12 18SK -30 -30 -7 -30 -21 4 30 -12 -30 9 -7 -27 -10 11 11FI 4 -3 10 -12 13 -15 0 10 -2 7 8 -19 3 -19 16SE 5 0 6 4 3 -7 -12 26 0 -1 7 -5 2 -7 17UK 7 -2 11 -13 9 -7 -5 11 9 3 7 -5 13 -12 3Per capita GDP gapEU15 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0std-dev EU15 11.5 13.6 9.3 5.9 15.3 9.4 1.7 21.1 3.9 9.0 0.4 2.2 23.2 1.2 8.4EU27 -11.4 -13.3 2.2 -5.6 -5.9 -2.4 1.0 -4.0 -0.9 4.6 -0.2 -0.9 -7.7 -1.0 0.3Five Best EU15 18.9 18.7 11.4 5.1 24.5 8.7 2.4 26.9 3.9 10.1 0.3 2.4 32.3 1.2 8.2Euro area 1.8 1.3 0.5 0.4 0.4 0.5 -0.1 0.4 0.0 -0.6 0.1 0.5 0.0 0.0 0.3EU5 18.9 12.3 6.1 1.3 11.0 0.5 1.4 0.0 4.9 -5.9 0.2 0.3 34.8 0.6 4.4
Gap EU15-EU27 11.4 13.3 -2.2 5.6 5.9 2.4 -1.0 4.0 0.9 -4.6 0.2 0.9 7.7 1.0 -0.3Gap EU15-five best -18.9 -18.7 -11.4 -5.1 -24.5 -8.7 -2.4 -26.9 -3.9 -10.1 -0.3 -2.4 -32.3 -1.2 -8.2Gap EU15-EU5 -18.9 -12.3 -6.1 -1.3 -11.0 -0.5 -1.4 0.0 -4.9 5.9 -0.2 -0.3 -34.8 -0.6 -4.4
Step 3: Scoring systemStep 3: Scoring system
GDP components Old scoring New scoringLabour utilisation 2 30
Share of working age population 2 30Native population -1 -6
Net migration -2 -20Unemployment rate 1 8
Average hours worked 2 22Youth participation -2 -12
25-54 male participation 2 2025-54 female participation 1 10
55-64 participation 0 0Labour productivity -2 -30
Capital deepening -2 -30Total factor productivity -2 -21
Labour quality (educational attainment) 0 -1GDP per capita -2 -28
Improvements to the Improvements to the methodologymethodology
Robustness checks Correlations between indicators Taking account of cyclicality Extending growth accounting to include
sectoral decomposition or environtal dimension
Aggregate score based on a narrower set of indicators
Extending growth accounting to include forecast
Presentational issues
Next stepsNext steps
• Questionnaire to MSs to seek Questionnaire to MSs to seek clarification on:clarification on:
• new scoring schemenew scoring scheme• cyclical adjustmentscyclical adjustments• robustness checksrobustness checks• presentation of results etc.presentation of results etc.
• « Final » proposal to be presented in « Final » proposal to be presented in January 2008January 2008
• Methodology to be applied by May Methodology to be applied by May 20082008
Mechanical application: Mechanical application: overall resultsoverall results
Policy areas -- Aggregate scores for CZ Level ChangeLabour marketActive labour market policies 0 0Making work-pay: incentive to work through the interplay of tax and benefit system 0 1Reforming labour taxation to stimulate labour demand -1 -1Relaxing job protection while combating labour market segmentation/dualisation 0 -1Working time organisation 1 0Specific labour supply measures for women -1 0Specific labour supply measures for older-workers) 0 1Improving wage bargaining and wage-setting policies -1 1Immigration and integration policies 1 2Labour mobility (geographical and sectoral) 0 0Product and capital market regulationsOpenness to trade and investment 0 1Barriers to entrepreneurship and business environment -1 -1Competition-friendly policy framework 0 -1Efficient financial markets and access to finance 0 0Innovation and knowledgeR&D, innovation policies and ICT -1 1Education and life long learning 0 0MacroeconomyLong-term sustainability of public finances and welfare policies 0 0Stability oriented macroeconomic policies 0 0
Example: Making work Example: Making work paypay
Making work-pay: incentive to work through the interplay of tax and benefit system Level Growth
Unemployment benefit duration, months (Danish study-median of the min-max range) 2Average unemployment benefit duration (years) (OECD)Job availability requirement index (Danish study) 2Unemployment trap (low wage-earner): Marginal effective tax rate for an unemployed person (67% AW, single person) 2 2Unemployment trap (average wage-earner): Marginal effective tax rate for an unemployed person (100% AW, single person) 1 2Inactivity trap (low wage-earner): Marginal effective tax rate when moving from social assistance to work (67% AW, single person) 0 2Inactivity trap (average wage-earner): Marginal effective tax rate when moving from social assistance to work (100% AW, single person) 0 2Net Replacement Rates for unemployed persons (67% AW, single person) 2 1Net Initial Replacement Rates for unemployed persons (100% AW, single person) 1 1Average unemployment benefit replacement rate (%) (OECD)Unemployment rate - Pre-primary, primary and lower secondary education - levels 0-2 (ISCED 1997) (%) -2 -2Employment rate - Pre-primary, primary and lower secondary education - levels 0-2 (ISCED 1997) (LFS) (%) -2 -2Long-term unemployment rate -1 1Aggregate score on level 0 1Number of individual indicators with negative performance 3 2
Example: Female and Example: Female and older worker LSolder worker LS
Specific labour supply measures for women Level Growth
Childcare (0-2 years) for less than 30 hours -2Childcare (0-2 years) for 30 hours and more -2Childcare (3 years to compulsory school age) for less than 30 hours -1Childcare (3 years to compulsory school age) for 30 hours and more 0Childcare (compulsory school age up to 12 years) for less than 30 hours 0Childcare (compulsory school age up to 12 years) for 30 hours and more 0Number of months of maternity/paternity/parental leave with benefits replacing at least 2/3 of salary 1Inactivity trap for the second member of a couple (half-time at 67% APW) -2 -2Low-wage trap for second-earner income (first earner: 67% APW; second earner: 33% to 67%) 0 2Life-long learning. For women -1 -2Female employment rate (%) 0 -1Gender pay gap in unadjusted form -1 1gender segregation in occupations -2 2Gender segregation in sectors -1 2Unemployment gender gap -1 -1Employment impact of parenthood -2 2Employment gender gap in full-time equivalent 1 0Female part-time workers in % of total female employment -2 -2Female employees in part-time who could not find stardard employment as % of total employees 2Aggregate score on level -1 0Number of individual indicators with negative performance 11 5
Specific labour supply measures for older-workers Level Growth
Implicit tax on continued work 1Coverage of early retirement 1Life-long learning: Participation of the population aged 55-64 in education and training -1 -2Average exit age from the labour force- Women Average exit age from the labour force- total 0 2Employment rate of older workers aged 55 to 64- Men 1 2Employment rate of older workers aged 55 to 64- Women -1 1Aggregate score on level 0 1Number of individual indicators with negative performance 2 1
Example: Business Example: Business environmentenvironment
Barriers to entrepreneurship and business environment Level Growth
Business investment - Gross fixed capital formation by the private sector as a percentage of GDP (STRIND er070)) (+) 1 -2Business demography - Birth rate - Number of real enterprise births of year n, divided by the population of active enterprises of year n (STRIND er081) (+)0Business demography - Survival rate - The percentage of all real enterprise births of year n which are still active in year n+2 (STRIND er082) (+)-2Administrative burdens on startups (OECD) (-) -1Regulatory and administrative opacity (OECD) (-) -2Starting a Business - time, procedure, cost, capital requirement, average rank (World bank doing business) (-) -1 2Dealing with Licenses - procedures, time, cost, average rank (World bank doing business) (-) -2 0Registering Property - procedures, time, cost, average rank (World bank doing business) (-) 0 -1Paying Taxes average rank (World bank doing business) (-) -1 -1Enforcing Contracts - procedures, time, cost, average rank (World bank doing business) (-) 0 -1Closing a Business time, cost, recovery rate average rank (World bank doing business) (-) -2 -1Propensity towards entrepreneurship - Total population considering self-employment (in %) (European Commission, Flash Eurobarometer) (+)-2Aggregate score on level -1 -1Number of individual indicators with negative performance 8 5
Example: R&D, Example: R&D, innovation and ICTinnovation and ICT
R&D, innovation policies and ICT Level Growth
Summary Innovation Index 2006 -2 2High-tech exports - Exports of high technology products as a share of total exports -1Gross domestic expenditure on R&D (GERD) - Percentage of GDP -1 2Gross domestic expenditure on R&D (GERD) by source of funds - industry - Percentage of GDP -1 2Gross domestic expenditure on R&D (GERD) by source of funds - government - Percentage of GDP -1 2Gross domestic expenditure on R&D (GERD) by source of funds - abroad - Percentage of GDP -2 2Science and technology graduates - total - Tertiary graduates in science and technology per 1000 of population aged 20-29 -2Patent applications to the European Patent Office (EPO) - Number of applications per million inhabitants -2Patents granded by the United States Patent and Trademark Office (USPTO) - Number of patents per million inhabitantsVenture capital investments - early stage - Percentage of GDP -1Venture capital investments - expansion & replacement - Percentage of GDP -2 2Level of Internet access - households - Percentage of households who have Internet access at home -2 2ICT expenditure - IT - Expenditure on Information Technology as a percentage of GDP 0 2ICT expenditure - Telecommunications - Expenditure on Telecommunications Technology as a percentage of GDP 1 -1E-commerce via Internet - Percentage of enterprises' total turnover from e-commerce via Internet -1 0E-government on-line availability - Percentage of online availability of 20 basic public services -2E-government usage by individuals - total - Percentage of individuals aged 16 to 74 using the Internet for interaction with public authorities -1 2E-government usage by enterprises - Percentage of enterprises which use the Internet for interaction with public authorities 1 0Broadband penetration rate - Number of broadband lines subscribed in percentage of the population -2 2Aggregate score on level -1 1Number of individual indicators with negative performance 15 1
Reform area Modelling approach Coverage
Labour and product markets
QUEST IIeconometric estimates
EU1513 OECD countries[1]
Effective retirement age
ECFIN ageing model EU15 aggregate
Internal Market QUEST II EU25 aggregate
Administrative burden
QUEST IIIWorldScan
EU15 aggregateEU25
Increased R&D spending
QUEST IIIWorldScan
EU15 aggregateEU25
[1] Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom.
Method III - Modelling the impact of structural refroms
Simulations included in 2007 APR
Reform area Input into models Results
Labour and product markets
Changes in policy variables (e.g. tax wedge, taxes, unemployment benefits and regulation of PMs) since 1995.
2% increase in EU15 GDP and 1.4 p.p. reduction in structural unemployment
Effective retirement age
One year increase in retirement age
1.5% increase in EU15 GDP by 2025 and 2.5% by 2050
Enlarged Internal Market
Gains from greater integration and enlargement (e.g. higher competition and more trade) over 1992-2006
2.2 increase in EU25 GDP and 1.4 increase in employment
Administrative burden
25% reduction in administrative burden by 2010
1.3% increase in GDP by 2025
Increased R&D spending
Reaching national R&D expenditure targets by 2010
2.6 to 4.4% increase in EU25 GDP (25-30% due to spillovers)
Main results