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Berlin, 30 November 2016
Enhancing Economic Flexibility:
What Is in It for Workers?
www.oecd.org/eco/enhancing-economic-fl...
Key messages
2
Enhancing economic flexibility has different effects on different people
• Overall, reforms that make produ...
Structure
3
1. Motivation and approach
2. Effects across all workers
3. Influence of other policies
4. Effects on workers ...
1. MOTIVATION AND
APPROACH
4
Motivation: How to make pro-growth
reforms more inclusive?
5
Key issue: many people gain, but some may lose a lot, at leas...
Approach: micro analysis can show what
flexibility policies mean for individuals
6
Micro-level data
• Six national surveys...
2. EFFECTS ON WORKERS
IN ALL SECTORS
7
Reforms enhancing product market competition boost
workers’ job-finding chances
8
Source: Cournède, Denk and Garda (2016)....
Flexibility-enhancing reforms have no
systematic effects on job-loss risk …
9
0
2
4
6
8
10
12
EPL-regular EPL-temporary PM...
…but product market reforms imply more frequent
transitions out of a job for low-income workers
1010
Source: Cournède, Den...
Product market reforms generally boost
women’s job-finding chances but not men’s
1111
Source: Cournède, Denk and Garda (20...
Product market reforms increase job-
finding chances mostly for the young
1212
Source: Cournède, Denk and Garda (2016).
No...
3. INFLUENCE OF OTHER
POLICIES
13
Easing job protection boosts hiring in
countries with strong activation policies
1414
Source: Cournède, Denk and Garda (20...
Easing job protection raises job-loss risk in
countries with medium-level wage coordination
1515
Source: Cournède, Denk an...
Pro-competition reforms typically reduce job-
loss risk where job protection is flexible
1616
Source: Cournède, Denk and G...
4. EFFECTS ON WORKERS
IN REFORMED INDUSTRIES
17
Network industry reform has reduced
estimated wage premia in these sectors
18
Source: Denk (2016).
Note: This chart shows ...
Network industry reform has been
accompanied by higher worker exit and entry
19
Source: Denk (2016).
Note: This figure sho...
5. POLICY PACKAGES FOR
INCLUSIVE REFORMS
20
Reform broadly rather than narrowly
21
Recognise that narrow reforms can imply lower relative wages in reformed sectors
Na...
Design strategies that enhance job gains, limit
job losses and help the most vulnerable
22
Reform is more inclusive when c...
An illustration: activation policies can enhance
the benefits of labour-market reform
2323
Source: Cournède, Denk, Garda a...
24
Underlying data and analysis:
Cournède, B., O. Denk, P. Garda and P. Hoeller (2016): “Enhancing Economic
Flexibility: W...
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Enhancing economic-flexibility-what-is-in-it-for-workers-oecd-policy-paper-november-2016

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Enhancing economic-flexibility-what-is-in-it-for-workers-oecd-policy-paper-november-2016

  1. 1. Berlin, 30 November 2016 Enhancing Economic Flexibility: What Is in It for Workers? www.oecd.org/eco/enhancing-economic-flexibility-what-is-in-it-for-workers.htm ECOSCOPE blog: oecdecoscope.wordpress.com
  2. 2. Key messages 2 Enhancing economic flexibility has different effects on different people • Overall, reforms that make product markets more competitive enhance job-finding chances • This benefit is concentrated among women and younger workers • Low-income and low-skilled workers experience higher labour-market turnover as a result of such reforms • Regulatory reform reduces relative wage premia for workers in the sectors that undergo reform The policy framework shapes the effects of flexibility-enhancing policies on workers • Product market reforms generate higher job-finding benefits and lower job-loss costs where labour-market policy settings are more flexible • Activation programmes enhance the job-finding benefits of employment protection reforms Broad reform strategies across sectors and policy areas including active support for vulnerable workers serve inclusive growth best
  3. 3. Structure 3 1. Motivation and approach 2. Effects across all workers 3. Influence of other policies 4. Effects on workers in reformed sectors 5. Policy implications
  4. 4. 1. MOTIVATION AND APPROACH 4
  5. 5. Motivation: How to make pro-growth reforms more inclusive? 5 Key issue: many people gain, but some may lose a lot, at least temporarily • Loss aversion magnifies perceived costs relative to gains • Those who lose from a reform are more likely to organise against it than those who gain Scope: reforms that make labour or product market rules more flexible • Reforms that reduce employment protection legislation for workers with regular (EPL-R) contracts or (EPL-T) temporary • Reforms that instil greater competition in: • Energy, transport and communications regulation (ETCR) • Product market regulation (PMR) Question: what are the effects of greater economic flexibility on workers? • The results document reform effects on the • Risk of becoming jobless (unemployed or moving out of the labour force) • Chances of finding a job when unemployed • Wages of workers in reformed industries relative to other industries Conclusion: policy packages can deliver more inclusive benefits
  6. 6. Approach: micro analysis can show what flexibility policies mean for individuals 6 Micro-level data • Six national surveys (AUS, DEU, KOR, CHE, GBR, USA) • European Community Household Panel (ECHP) • EU Survey of Income and Living Conditions (EU-SILC) • EU Labour Force Surveys • EU Structure of Earnings Survey Micro-level regressions • Effects on workers in all sectors: micro-panel regressions on 26 countries with individual controls, country policy indicators and interactions over 1994-2012 • Effects on workers in reformed sectors: micro-level regressions including sector regulation indicators and individual controls using three multi- country datasets
  7. 7. 2. EFFECTS ON WORKERS IN ALL SECTORS 7
  8. 8. Reforms enhancing product market competition boost workers’ job-finding chances 8 Source: Cournède, Denk and Garda (2016). Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD indicators of employment protection legislation for regular (EPL-R) or temporary (EPL-T) contracts , product market regulation (PMR) or energy, transport and communication regulation (ETCR). 0 5 10 15 20 25 30 35 40 EPL-regular EPL-temporary PMR ETCR Country average After a typical reformPer cent Job protection Product market competition Average transition probabilities into employment among jobless working-age persons
  9. 9. Flexibility-enhancing reforms have no systematic effects on job-loss risk … 9 0 2 4 6 8 10 12 EPL-regular EPL-temporary PMR ETCR Country average After a typical reform 9 Source: Cournède, Denk and Garda (2016). Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD indicators of employment protection legislation for regular (EPL-R) or temporary (EPL-T) contracts , product market regulation (PMR) or energy, transport and communication regulation (ETCR). Per cent Job protection Product market competition Average transition probabilities out of employment
  10. 10. …but product market reforms imply more frequent transitions out of a job for low-income workers 1010 Source: Cournède, Denk and Garda (2016). Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD indicator of regulation in product markets (PMR, left panel) or energy, transport and communication (ETCR, right panel). Hatched areas indicate negative effects. Average transition probabilities out of employment, percentages 0 5 10 15 20 25 30 Bottom quartile Second quartile Third quartile Top quartile 0 5 10 15 20 25 30 Bottom quartile Second quartile Third quartile Top quartile Energy, transport and communication regulation Overall product market regulation
  11. 11. Product market reforms generally boost women’s job-finding chances but not men’s 1111 Source: Cournède, Denk and Garda (2016). Average transition probabilities into employment, percentages Overall product market regulation 0 5 10 15 20 25 30 35 40 Men Women 0 5 10 15 20 25 30 35 40 Men Women Energy, transport and communication regulation Note: A typical reform is defined as the average 5-year policy change over reform episodes in the OECD indicator of regulation in product markets (PMR, left panel) or energy, transport and communication (ETCR, right panel). Hatched areas indicate negative effects.
  12. 12. Product market reforms increase job- finding chances mostly for the young 1212 Source: Cournède, Denk and Garda (2016). Note: A typical reform is defined as the average 5-year policy change (measured by the OECD product market regulation PMR indicator) over reform episodes. Estimated percentage point change in job-finding probabilities after a typical product market reform -1 0 1 2 3 4 5 6 25 30 35 40 45 50 55 Age
  13. 13. 3. INFLUENCE OF OTHER POLICIES 13
  14. 14. Easing job protection boosts hiring in countries with strong activation policies 1414 Source: Cournède, Denk and Garda (2016). Note: A typical reform is defined as the average 5-year policy change (measured by the indicator of employment protection legislation for regular contracts EPL-R) over reform episodes. ALMP stands for active labour market policies. Estimated percentage point change in job-finding probabilities among jobless working-age people after a typical reform of job protection for regular contracts -2 -1 0 1 2 3 4 5 6 7 0.2 0.4 0.5 0.7 0.8 1.0 1.2 1.3 1.5 1.6 1.8 1.9 2.1 2.3 2.4 2.6 2.7 2.9 3.1 Ratio of ALMP spending to cross-country 2012 average DNK(2012) EST (2012) SWE (2012) HUN (2012)
  15. 15. Easing job protection raises job-loss risk in countries with medium-level wage coordination 1515 Source: Cournède, Denk and Garda (2016). Percentage points Estimated changes in transition probabilities out of employment after a typical reform of job protection for regular contracts -2 -1 0 1 2 Low coordination Medium coordination High coordination Note: A typical reform is defined as the average 5-year policy change (measured by the indicator of employment protection legislation for regular contracts EPL-R) over reform episodes.
  16. 16. Pro-competition reforms typically reduce job- loss risk where job protection is flexible 1616 Source: Cournède, Denk and Garda (2016). Note: A typical reform is defined as the average 5-year policy change (measured by the energy, transport and communication regulation ETCR indicator) over reform episodes. -4 -3 -2 -1 0 1 2 3 4 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 EPL-R Percentage points GBR (2013) PRT (2013) PRT (1994) Estimated changes in transition probabilities out of employment after a typical regulatory reform of network industries
  17. 17. 4. EFFECTS ON WORKERS IN REFORMED INDUSTRIES 17
  18. 18. Network industry reform has reduced estimated wage premia in these sectors 18 Source: Denk (2016). Note: This chart shows the average tightness of network industry regulation in 21 OECD countries and the associated estimated wage premium for workers in this industry. 0 2 4 6 8 10 12 14 16 18 20 0 2 4 6 8 10 12 14 16 18 20 1985 1990 1995 2000 2005 2010 Wage premium for network industry workers Network industry regulation index Per cent Highly regulated Lightly regulated Index points
  19. 19. Network industry reform has been accompanied by higher worker exit and entry 19 Source: Denk (2016). Note: This figure shows the average annual rates of exit and entry out of and into work in network sectors, from and to unemployment or economic inactivity (blue bars), the effect of a typical reform (green rectangles) and confidence intervals (black segments). A typical network industry reform is defined as the mean five-year change in the indicator across countries where it declined. 0 5 10 15 20 25 Exit rate from network industries Entry rate into network industries After a typical reform Country average Annual rates of exit and entry out of and into work in network sectors Per cent
  20. 20. 5. POLICY PACKAGES FOR INCLUSIVE REFORMS 20
  21. 21. Reform broadly rather than narrowly 21 Recognise that narrow reforms can imply lower relative wages in reformed sectors Narrow reform coupled with direct compensation risks being short-sighted •Yes, there are instances where direct compensation facilitated policy changes •But this tactic •Raises issues of fairness for workers employed in already competitive sectors who find themselves funding former beneficiaries of the rents that anti-competitive regulation generated •Risks compromising future reform, because the anticipation of compensation produces the wrong incentives in still unreformed sectors Broad reform is fairer and more economically efficient •Across-the-board reform of regulated sectors •Ensures that workers experiencing reductions of their wage premia gain purchasing power from the price reductions that reform generates in other sectors: it is fairer •Avoids the need to fund compensation and the associated distortions: it is more efficient
  22. 22. Design strategies that enhance job gains, limit job losses and help the most vulnerable 22 Reform is more inclusive when co-ordinated rather than piecemeal • Product market reforms deliver larger job-finding gains while generating smaller increases in job-loss risks where labour market settings are more flexible. Active labour market policies facilitate inclusive reform • Reforms of employment protection typically enhance jobless people’s chances of finding jobs more in countries that invest more in active labour market policies • The quality of activation programmes matters • The uneven effects of reforms underline the importance of ensuring that active labour market policies effectively help workers who are less qualified or have low income
  23. 23. An illustration: activation policies can enhance the benefits of labour-market reform 2323 Source: Cournède, Denk, Garda and Hoeller (2016). Note: A typical reform of employment protection legislation for regular contracts (EPL-R) reduces the EPL-R indicator by 0.30. Spending on active labour market programmes (ALMP) per person unemployed takes its highest 2012 value, relative to GDP per capita, in Denmark. 0 10 20 30 40 50 60 70 SWE ISL FIN PRT CHE EST DNK ESP NOR AUT NLD HUN GBR AUS IRL CZE SVK GRC POL FRA DEU ITA BEL SVN LUX Transition probability jobless-employed 2005-12 Typical EPL reform with ALMP at current settings Typical EPL reform with highest observed ALMP Per cent
  24. 24. 24 Underlying data and analysis: Cournède, B., O. Denk, P. Garda and P. Hoeller (2016): “Enhancing Economic Flexibility: What is in it for Workers?”, OECD Economic Policy Papers, No. 19, OECD Publishing. Cournède, B., O. Denk and P. Garda (2016), “Effects of Flexibility-Enhancing Reforms on Employment Transitions”, OECD Economics Department Working Papers, No. 1348, OECD Publishing. Denk, O. (2016), “How Do Product Market Regulations Affect Workers? Evidence from the Network Industries”, OECD Economics Department Working Papers, No. 1349, OECD Publishing. Garda, P. (2016), “The Ins and Outs of Employment in 25 OECD Countries”, OECD Economics Department Working Papers, No. 1350, OECD Publishing. Disclaimers: This document should not be reported as representing the official views of the OECD or its member countries. The opinions expressed and arguments employed are those of the authors listed on this page. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Latvia was not an OECD member at the time of preparation of this publication. Accordingly, Latvia does not appear in the list of OECD members and is not included in any OECD aggregates.

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