INVESTMENT AND GROWTH IN OECD COUNTRIES TUAC May 2016

Two issues “Today’s wage concessions are tomorrow’s profits and the investment of the day after tomorrow’ ‘To attract more investment, economies need a flexible labour code”

PROFITS ARE HIGH…..

…BUT BUSINESS INVESTMENT DISAPPOINTS

ZOOMING IN: CHANGE IN NET STOCK

6 Even more of a paradox: Interest rates are very low, providing an opportunity to borrow and invest Source: Thomson Reuters. 2-year government bond yields

WHY ? Heritage of financial crisis (euro area banking systems dysfunctional, business paying back debt or piling cash for precaution) Uncertainty: Structural reforms and austerity squeezing demand out of economy….. US: Role of energy sector boom now followed by bust Japan: Dynamics of deflation Recently, discussion on oligopoly profits, mainly but not exclusively US… ….despite (or exactly because of ?) product market deregulation…..

THE ECONOMIST: TOO MUCH PROFITS IN THE US

FOREIGN DIRECT INVESTMENT AND LABOUR CODE REFORM Key argument: All need to compete for the most flexible labour code Where is the bottom ? A recent but helpful response from the World Bank: ‘Balancing regulations to promote jobs’

WORLD BANK ON EMPLOYMENT CONTRACTS A-typical contracts encourage substitution of temporary for permanent work but do not increase overall employment Recommends – Equal treatment in the job – Equivalent social protection – Facilitate access to training – Measures to combat disguised employment relationships – Written labour contract (or similar) – Discourage chains of short term contracts (objective reasons, max duration, max number of renewals) – Reasonable probation period (between 3 and 6 months), set maximum number

WORLD BANK ON MINIMUM WAGES A benchmark for ’fair’ wages, corrects unequal bargaining power, raises informal sector wages, increases productivity Impact on jobs usually small or insignificant, modest or nonexisting. Recommends: – Carefully consider setting level of minimum wages (not too high but not too low either) – Limit differentiated MW (discrimination, employers abuse these) – Adjust MW over time – Consult with social partners

WORLD BANK ON DISMISSAL PROCEDURES Reference to international treaties (right to dismiss but only for valid reasons and worker has right not to be deprived of work unfairly) ‘Findings on employment impacts are mixed but the results are also fragile’ Recommendations: – Define valid reasons or just causes for dismissal – To be excluded: Union membership, race,age,gender, illnes – Explore other options before dismising – All workers to be entitled to advance notification, period to be extended in case of mass redundancy – Collective dismissal: Consultation with workers’representatives – When appropriate, consider early retirement

Dealing with problem of displaced workers: Well designed EPL helps