Employment Analysis and Policies Department
EMPLOYMENT POLICIES IN EUROPE:
WHAT CAN WE LEARN FROM THE BEST PERFORMING COUNTRIES?
International Seminar for Experts organised by the Cicero Foundation in the series Great Debates PARIS, 13 - 14 January 2000
A Dutch Miracle?
The presentations I saw (listed below) were knowledgeable and well prepared. Paul Van Leeuwe, social attaché at the permanent representation of the Netherlands to the EU, "The Fight against Unemployment in the Netherlands - How Miraculous is the Dutch Miracle"? This seemed to me a standard official account of the Dutch miracle (not like Visser and Hemerijck's account in which governments nearly toppled and political parties risked extinction in the struggle to retrench the welfare state), but clearly and well presented. Wassenaar agreement 1982. Unit labour costs have remained low from 1985 through 2000; profits share went up continually from 1980 to 1990 and stayed high; investment rose as from 1985; the service sector has created a huge amount of jobs - no doubt due to the freeze of the minimum wage. Perhaps more unusual points were the following. The growth of part-time work partly reflects union re-examination of social security conditions (taking part-time workers into pension agreements, etc.). CPB simulations - showing the consequences of wage increases on competitiveness (also VAT increases) generally lead to a framework agreement where the need to maintain the Netherlands' competitive position was taken into account. The Netherlands does not have a leading sector for wage negotiations as Germany does with IG Metall, and this helped keep wage settlements moderate.
Danish Labour Market Policy - A Model for Europe?
Bo Hammer, from the Ministry of Labour, Copenhagen, "The Danish Labour Market Policy - A Model for Europe?" Bo Hammer transferred to MoL from the Ministry of Finance which, he said, explains his interest in statistical evaluation techniques. He was to talk to OECD (ECO) the next day. If ECO is getting much input like this, its practical analysis of labour market policy in individual countries will stay better than ELSA's, except hopefully in cases when we have recently reviewed the country in question. This was mainly (for me) a standard analysis in which the 1994 reform of UI entitlements introducing the "active period of benefits", advances of its timing from four, then two, and then one year of unemployment, other measures to tighten eligibility criteria, and the 1996 youth package, look like prime players. Other factors mentioned include labour market flexibility ("fire at a day's notice"), PES decentralisation, measures to prevent bottlenecks, and a focus on skills of the workforce. Most of this and more is in a book "The Labour Market Reforms - A Status" (Ministry of Labour, October 1999), which I guess may provide the basis for the Danish paper at the Prague conference. A few things seem worthy of particular mention: Denmark's success is not attributable to work-time reduction since the share of part-time in total employment has in fact fallen (from an initially high level) considerably. The argument that the structural, and not just the cyclical, rate of unemployment has been reduced is supported by a graph showing that vacancies (stock unfilled) have fallen each year 1995-6-7-8! (To my mind, this probably shows that the activation strategy has pushed people more and more intensively to take vacancies; it could also reflect a shift back to filling vacancies by direct referral). A related point here is that even the very long term unemployed are now finding jobs. The annual rate of wages rises has been increasing steadily since 1994 and is now approaching 5%, but this is considered very moderate comped to the 1985-6 expansion when inflation took off at far higher unemployment rates; labour shortage data also suggest that labour market tensions are yet at the 1985-6 level. Bo's presentation included a graph which is not in the book: "Relative outflow from unemployment, activation or training leave into employment broken down into benefit seniority, 1996, 1997 and 1998". This is remarkable (a) at a technical level Denmark can report seamlessly the rate at which people on public support (i.e. on benefit or in ALMPs) are entering employment, which is a radical improvement on other countries which can report exit rates from open unemployment only and (b) there are highly visible changes in the outflow-by-duration profile between 1996 and 1998. By the end of 1998, the activation obligation was effectively operational around the 2-year duration point. Hazard rates to employment, in 1998 data, decline up to about 10 months, then stay roughly flat, then slowly but steadily increase after the 15th month. The hazard rate into employment is higher for 3-4 year unemployed than for 9-15 month unemployed! In terms of everything that labour market specialists "know", this is fairly astounding and Bo is aware of that. The graph demonstrates without much room for doubt that the activation obligation (cum the 5-year limit on benefits - it was reduced to 4 years only in 1999) has a large impact on the rate of transition to market jobs.
The Impact of a European Employment Policy
Michel Biart, from the European Commission, DG V, Directorate A, Employment Strategy and ESF Policy Development, "The European Employment Pact after the Helsinki Summit - Will Peer Pressure Work?" This talk (no paper) was interesting precisely for its reflections on how the EU can influence policy - not for its analysis of what policies are needed! Mr.Biart has been working for 3 years on launching employment guidelines. Europe suffers from a conjunction of macro (oil, real interest etc) shocks and structural effects, where he mentioned Europe's deficit of employment in the service sector, plausibly attributed to national regulations, capital markets that are not small-employer-friendly, etc. The Employment Pact is not a Pact. The "Luxembourg Process" was the right description. Peer pressure is more relevant. With the Euro, small countries may spend more without a negative monetary policy offset to the fiscal multiplier, so there is a free rider problem, and this creates an incentive for peer pressure. Among high level officials there is much exchange and preparation for political dialogue. Also at high political level, EC is trying to attract multinationals. EC is trying to use public pressure on government (i.e. public asks: why is our country underperforming?) Using the device of national recommendations from the EC, the press has the impression that the country got bad marks when in fact half the countries received the same recommendation! Public opinion needs clear information, but the treaty does not allow this easily. "Benchmarks" is the new concept, now popular. The problem is, if we say "4% unemployment is the benchmark" people will say this makes no sense in an individual national context. Yet real policy benchmarks are complex - has the policy been effective? What about dead weight and displacement effects, etc? The European Parliament does not have a clear voice, so it is difficult to mobilise. The employment guidelines (NAPs) are Debated in national parliaments, but even parliaments fail to understand them, and peer pressure becomes a matter for specialists. What has worked best is the top level, peer pressure among prime ministers! In 1997 negotiations, Aznar was against guidelines but in the end the UK and Spain gave in. Aznar went home saying that he had negotiated an escape clause for Spain. But this led to national protests, then the government started saying of course we will comply", and finally Spain became a rigid defender of the guidelines! The guidelines, NAPs, are well under way and have momentum, but there is now a risk of fatigue. For the new employment summit (March 2000 in Vienna), the plan is to have national targets for: reducing taxes on labour, not binding unless chosen, life long learning, equipping schools with IT ("a computer in every school"), entrepreneurship (here, no clear target but simplification of regulations and access to capital, 20% of population to start a business) equal opportunity (we cannot say that Spain is backward but we can show trends in female/male ratios) adaptability - here we are at a loss to find a good target. Same problem for new types of work organisation.
The 35 Hours Week in France
Claude Seibel, from the French Ministry of Labour and Solidarity, Director of DARES, "Toward a 35 Hours Working Week - An Assessment of the French Approach" This was mainly a survey of how firms have reacted to the 35 hours in terms of work reorganisation, wage freezes, etc. in the 35-hour agreements, and the statistical development of hours and employment, comparing firms with such agreements, and those without. Mr. Seibel explained that in the light of the decision, just taken by the Conseil Constitutionnel, there will no longer be a 10% tax on overtime paid beyond the 35 hours. There will still be the 35 hour law and the 130 hours per year limit on overtime without authorisation, which leave it possible for firms to continue at close to 38 hours per week (though they then have no margin, when they do need to work overtime). David Grubb, OECD "Fighting Unemployment in Europe - What Strategy Should be Followed?" My presentation had slides headed: Employment vs. Unemployment; determinants of employment (EPL, minimum wages, conflictual industrial relations involving wage pressure, lax retirement and invalidity benefits, the structure of the tax benefit system - N.B. high taxes and unemployment benefits can increase, not reduce labour supply); policies towards unemployment; activation; specific PES strategies; do policies to reduce unemployment increase wage inequality?; factors of secondary importance (for the unemployment rate); conflict and responsibility. Rune Solberg (Ministry of Labour, Norway) said he found the last theme the most interesting, while Marcel van Herpen (Director Cicero Foundation) was interested to hear that high taxes do not necessarily reduce employment.