1 Labour market reforms in OECD countries: some lessons Raymond Torres, OECD

2 Social protection and regulations have long been seen as bad for job creation r Welfare benefits may inhibit work incentives r Labour regulations (minimum wages, dismissal regulations, etc.) may: l make employers reluctant to hire (lower labour demand); and l slow down allocation of resources (lower labour productivity

3 Point 1: If well designed, welfare benefits may promote labour supply The “mutual obligations” approach r Governments offer good re-employment services, financial incentives to work, non-financial services like child-care – the “rights” r Beneficiaries should take active steps to find work – the “obligations” r This may require a minimum wage set at right level = > This can be very effective to bring disadvantaged groups into employment

4 Nordics, Netherlands: top employment performers…

5 Point 2: Employment regulations can be made consistent with employment r Overly rigid dismissal regulations can be a problem. l It can inhibit job creation, l Contribute to labour market duality and l Reduce mobility r But some degree of regulation can help l This will force firms to internalise cost of dismissal decisions: see Austrian reform, experience rating in the US l Helps find better job match (productivity)

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7 Wide cross-country differences in union density and collective bargaining coverage, 2000

8 Point 3: Better skills are needed r Information and communications technology has opened up new growth possibilities: l New technology may help raise productivity of existing firms; l it may also create new market opportunities; and l has raised knowledge externalities r But, this productivity potential will not be realised automatically: it needs better human capital for all and new work practices

9 Big shift away from low-educated employment…

10 Training reduces the risk of unemployment

11 …Employer-employee bodies help promote human capital

12 Point 4 : there is no single policy strategy r One approach is not to do anything, which in countries where benefit dependency is high will entail non- employment persistence r Another approach is to reduce benefit levels and their duration, and reduce demand-side barriers (the deregulation approach): l This will enhance work incentives and will also raise labour demand l It is also cheaper for public purse l But it will not be enough in certain cases (lone parents)... l... And as such does not help improve career prospects and may lead to labour market insecurity

13 r A third approach is to reform benefits, maintaining them at an adequate level, but introducing a “mutual obligations” approach and modernising labour law: l Provision of benefits, employment-conditional support and active programmes, in return for effective job-search l Promoting skill development l Reform of EPL and wage formation systems l This may give job incentives and possibly facilitate transitions to a higher productivity logic... l... But it is costly and complex

14 Thank you