Ljubljana, 17/09/2012 Effects of labour market reforms in OECD countries – implications for Slovenia International Conference organized by the Ministry of Labour, Family and Social Affairs – Labour Market Reform: New Opportunities for a Better Tomorrow 17 September 2012, Ljubljana Rafal Kierzenkowski OECD, Economics Department, Head of Slovenia desk

2 Large income gap driven by productivity shortfall Source: Going for Growth (2012). Gap relative to the upper half of OECD countries, 2010 Labour market reforms in OECD countries

3 Breakdown of labour resource utilisation Labour market reforms in OECD countries Gap relative to the upper half of OECD countries, 2010 Source: OECD (2011), OECD National Accounts Statistics and OECD Economic Outlook: Statistics and Projections (databases); and OECD Productivity Database, December.

4 Increase in the unemployment rate... Source: Going for Growth (2012). Labour market reforms in OECD countries Per cent Source: OECD (2012), “Employment - by economic activity: Short-Term Labour Market Statistics”, OECD Employment and Labour Market Statistics (database), September.

5...and outflows of labour supply since the crisis Source: Going for Growth (2012). Labour market reforms in OECD countries Change in labour force participation rates, percentage points, 2008Q1-2012Q1

6 Reform packages can induce short-term benefits Source: Cacciatore, M., R. Duval and G. Fiori (2012), “Short-term Pain or Gain? A DSGE Model-based Analysis of the Short- term Effects of Structural Reforms in Labour and Product Markets”, OECD Economics Department Working Papers, forthcoming. A package combining a decline in entry barriers, a reduction in unemployment benefit replacement rate and a relaxation of job protection in a “rigid” economy Labour market reforms in OECD countries

7 Reductions in unemployment replacement rates Note: ** represents statistical significance at the 5% level. The simulation is based on the median-sized reform observed in the estimation sample. The impact of the reform is estimated controlling for initial unemployment benefit replacement rate. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in aggregate employment following a reduction in the initial unemployment benefit replacement rate Labour market reforms in OECD countries

8 Reductions in unemployment benefit duration Note: *** and ** represent statistical significance at the 1 and 5% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. The impact of the reform is estimated controlling for initial unemployment benefit replacement rate. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in youth unemployment following a reduction in unemployment benefit duration Labour market reforms in OECD countries

9 Boost spending on active labour market policies Note: Active labour market policies cover programs dealing with PES and administration, training, job rotation and job sharing, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives. Source: OECD, Labour Market Programmes and OECD Economic Outlook databases Spending on active labour market policies, 2009, in thousand USD PPPs Labour market reforms in OECD countries

10 Active labour market policies Note: *** and ** represent statistical significance at the 1 and 5% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in aggregate employment following a “typical” increase in public spending on ALMP employment incentives Labour market reforms in OECD countries

11 Tackle labour market dualism Employment protection legislation, index of 0-6 from least to most restrictive Source: Going for Growth (2012). A. Protection for regular employment B. Protection for temporary employment Labour market reforms in OECD countries

12 Reforms of job protection: regular contracts Note: *** and ** represent statistical significance at the 1 and 5% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in female unemployment following a “typical” reduction in job protection on regular contracts Labour market reforms in OECD countries

13 Reforms of job protection: temporary contracts Note: *** and * represent statistical significance at the 1 and 10% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in aggregate employment following a “typical” reduction in job protection on temporary contracts Labour market reforms in OECD countries

14 Reduce coverage rates of collective agreements Source: Going for Growth (2012). A. Coverage rates of collective bargaining agreements B. Trade union density rates Labour market reforms in OECD countries

15 Administrative extensions of collective agreements Note: ** and * represent statistical significance at the 5 and 10% levels, respectively. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in female unemployment following a decline in excess bargaining coverage Labour market reforms in OECD countries

16 Refrain from further increasing the minimum wage Note: Median earnings are for full-time employees and mean earnings for full-time workers. Source: OECD (2012), “Earnings: Minimum wages relative to median wages”, OECD Employment and Labour Market Statistics (database), June. Minimum wages, per cent, 2010 Labour market reforms in OECD countries

17 Reform the pension system to boost labour supply Labour force participation rates of 55-64, 2011 Source: OECD (2012), OECD Employment and Labour Market Statistics (database), June. Labour market reforms in OECD countries

18 Product market reforms Note: ** represents statistical significance at the 5% level. The simulation is based on the median-sized reform observed in the estimation sample. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in aggregate labour force participation following a “typical” easing of product market regulation Labour market reforms in OECD countries

19 Ease regulation of professional services Source: Going for Growth (2012). Index scale of 0-6 from least to most restrictive Labour market reforms in OECD countries

20 Reduce state control of business operation Source: Going for Growth (2012). Index scale of 0-6 from least to most restrictive Extent of public ownership Labour market reforms in OECD countries

21 The cycle is important Note: The lower line corresponds to the impact of the reform during “bad” times, while the upper line represents the impact during “good” times, corresponding to the minimum and maximum levels of the unemployment gap, respectively, as observed across the sample (i.e. across all countries and time). The central broken line represents the impact of the reform when the unemployment gap equals its median value. Source: Bouis, R. et al. (2012), “The Short-term Effects of Structural Reforms: an Empirical Analysis”, OECD Economics Department Working Papers. Change in aggregate employment following a “typical” reduction in initial unemployment benefit replacement rate Labour market reforms in OECD countries

22 Thank you for your attention!