Measuring Progress in Labour and Product Market Reforms

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Measuring Progress in Labour and Product Market
Reforms

• Tito Boeri
• Bocconi University and Fondazione Debenedetti
• Milan, June 20 2006

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Outline

• Why Reforms are needed. Employment, labour
  productivity and hours of work.
• Evidence on labour market and product market
  reforms. Cross market asimmetries and
  interactions.
• How can the EU growth strategy (after Lisbon) be
  improved? Who should do what? Which indicators?

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Europeans have lower incomes per capita because
they work less
Hourly Labour Productivity
Income per capitahourly labour productivitywork
hours per head
Source Groningen Growth Development Centre,
Total Economy Database
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Why less hours per head?

• Less people at work (the Lisbon target)

• 2. Less hours per worker

Deviations from the US
Source OECD
5
Still far from closing the headcounts employment
gap
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Are Europeans lazy and happy to work less than
Americans?
45
40
35
30
25
Average weekly hours worked per
Average weekly hours worked per self-
employee
employed
USA
ITALY
EU 15
Source Eurostat, European LFS Groningen Growth
Development Centre, Total Economy Database.
7
Less regulations in product market higher
labour productivity
Notes Single asterisk () stands for
significance at 5 level Double asterisk ()
stands for significance at 10 level Robust
standard errors in brackets.
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But something is happening acceleration of labor
market reforms in recent years
Reforms increasing flexibility and rewards from
labour market participation.
Source fRDB Social Reforms Database
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Just while product market reforms were
decelerating
Reforms increasing competition in airline, TLC,
electricity, gas, postal service, road and
railways flexibility.
Source fRDB Social Reforms Database
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Some cross-country convergence in EPL
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But are mostly two-tier reforms
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No convergence in product market regulations
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Why is it so difficult to reform product markets?

• Two-tier reforms in product markets are not
  feasible.
• Benefits of reforms are spread across many
  individuals, while losses are concentrated
• Lack of representation of consumers interests
• Progress was made in delegating authority
  (blame?) to Brussels (Single Market)

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The role of indicators in structural reforms
learning from the Lisbon failures

• Too many targets in the Lisbon agenda. With many
  targets, peer pressure becomes  peer
  protection.
• Disconnect with national policy debate. With
  targets more related to policies (rather than
  outcomes) is possible to force national
  parliaments to discuss national performance
  according to selected benchmarks.
• Need to review not only plans, but also the
  effectiveness of national policies in attaining
  these targets. Easy to write plans. Possible to
  document that they have been partly implemented.
  Difficult to show that they are effective.

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How to select indicators

• Related to policies more than outcomes (e.g., in
  terms of strictness of regulations rather than
  employment rates)
• In areas where a EU level initiative ias needed,
  e.g., related to plans to be presented to
  Brussels
• Or where there are important policy failures
  (e.g., representation of young people)

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Where is there scope for European supra-national
institutions?

• Not in labor market reforms
• But have national parliaments discuss Lisbon
  scorecards and improve exchange of information on
  ongoing active policy experiments
• Not in pension reforms
• But prevent the SGP to make it more difficult to
  carry out reforms which improve the long-term
  sustainability of pension systems while
  temporarily worsening public balances
• A strong case on immigration policy
• Lack of co-ordination leads to unrealistic
  policies and does not allow to reap the benefits
  of migration in terms of arbitrage of regional
  differences in labour productivity
• A strong case on product market reforms
• Reduce political resistance of national lobbies.
  Better to centralise regulations while fighting
  state aid

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