Measuring progress in labour and product market reforms Comments on a paper by Tito Boeri Adriaan Di

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Measuring progress in labour and product market
reformsComments on a paper by Tito
BoeriAdriaan DierxDirectorate General for
Economic and Financial AffairsEuropean
Commission

• Measuring well-being and societal progress
  JRC/OECD Workshop Series Milan, 19-21 June 2006

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Selected elements of Boeri paper

• EU performance relative to US
• Drivers of productivity growth
• Speed of reform
• Lisbon strategy
• Assessment of progress
• Objective of reform databases

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1. EU performance relative to US
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Trend break in Hourly Labour Productivity
EU-15 vs US (100)
Source EU Commission, AMECO
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Decline in EU-15 labour productivity growth due
to

• a slowdown in business investment growth
• a deterioration in total factor productivity
  growth

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2. Drivers of productivity growth

• Quality of Capital and Labour inputs
• Age of capital stock
• Investment in human capital
• Technological progress
• Investment in RD and innovation
• Better functioning markets

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Transmission channels linking product market
reforms to productivity growth
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Results IFS study for the Commission (Griffith et
al.)

• The Single market Programme and less time spent
  with government bureaucracy reduced mark-ups
• e.g. SMP was associated with 3 percentage points
  lower mark-up in the UK
• Lower rents are associated with higher employment
• e.g. the reduction in rents in the UK due to the
  SMP was associated with a 1.9 increase in
  employment
• The economic magnitude of these results is large
  predicted changes in employment due to PMRs are
  often larger than those due to LMRs

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Results IFS study for the Commission (Griffith et
al.)

• In contrast to employment, there are two
  conflicting theoretical impacts of product market
  competition on innovation
• Competition reduces gains from innovation
• Also puts pressure on firms to maintain market
  position
• TFP growth
• In manufacturing, the Single Market Programme
  raised TFP growth through increased RD
  expenditure
• In services, there is some evidence that
  competition is associated with higher
  productivity growth

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3. Speed of reformSources of change in OECD
product market regulation (Conway et al. 2005)
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4. Lisbon Strategy

• A comprehensive strategy
• Coherence of reforms / spillovers
• Political economy of reforms
• of coordinated structural reforms
• Structural reforms touch on areas of national
  competence
• Subsidiarity principle gt Less binding forms of
  co-ordination

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Mid-term review assessment

• Kok Report November 2004
• Poor implementation due to
• Too many priorities and targets
• Lack of national ownership
• Ineffective peer pressure

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Mid-term review re-launch

• European Council March 2005
• Focus on growth and employment
• Priority areas
• Knowledge and innovation
• Job creation
• Business potential
• new delivery mechanism

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Spring European Council March 2005
Integrated Guidelines (2005-2008) June 2005
National Reform Programmes October 2005
Spring European Council March 2006
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4a. Assessment of progress Key questions

• Are the Member States addressing the policy
  challenges identified in 2005 and implementing
  their National Reform Programmes in a credible
  manner and on time?
• What are the economic effects of already
  implemented and still planned measures, at the
  level of the EU, the euro area and the individual
  Member States ?
• Is there a need to modify or complement the
  reform strategies of Member States?
• Is there a need to issue country-specific
  recommendations? If so, which areas should be
  covered?

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Three methodologies
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Inventory of reform measures
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The logic behind
1. comprehensive inventory of planned and
implemented measures
identification of possible delivery gap
judgement on adequacy and sufficiency of measures
input for modelling
2. identification of effects of key measures on
growth drivers
3. model-based assessment of economic impact
estimation of overall economic impact
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Databases of microeconomic and labour market
reforms MICREF and LABREF

• 4b. Objective of reform databases

-gt to track reform measures in the context of
the assessment of structural reform efforts in
the EU Member States

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Database of Microeconomic reform MICREF

• Contents and Structure of MICREF

• MICREF contains
• mostly qualitative, descriptive information
• on single reforms,
• at EU Member State level,
• on an annual basis

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Structure comparable to the already developed and
published LABREF database containing measures
undertaken in labour markets
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Structure of MICREF

• Policy areas reflect the BEPGs
• Product markets open and competitive markets
• Market integration
• Competition policy
• Sector specific regulation
• Product markets business environment and
  entrepreneurship
• Start-up conditions
• Improving the (small) business environment
• Knowledge based economy
• RD and innovation
• Education

.
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Example of a MICREF datasheet
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Database of Microeconomic reform MICREF
Pilot cases focus on major reforms, without an
ambition to be comprehensive
Number of Microeconomic Reforms undertaken in
2004-2005
.
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Database of Microeconomic reform MICREF
Potential usage of MICREF

• Assessment of breadth and speed of microeconomic
  reforms
• Expected main transmission channel of impact of
  reform measures
• Indication of effectiveness of such measures
• Input into EU process of multilateral
  surveillance of structural reforms

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• Thank you for your attention!