1. Europe Institutional reforms that really matter: OECD institutional indicators vs. Dutch reform history. Ruud Gerards, Manuel Müllers and Joan Muysken CofFEE-Europe Maastricht University, Department of Economics Presented by Ruud Gerards at AIAS 6 November 2008 http://www.ruudgerards.nl

2. Europe Outline Methodology Dutch reform history Econometric evidence Comparison with OECD indicators Conclusions Further research/refinement of research

3. Europe Introduction Dutch Disease Dutch Miracle Objectives Which reforms have had considerable impact? Do OECD institutional indicators correctly pick up these reforms?

4. Europe Methodology Our methodology builds on Stegeman 2005 (Netherlands bureau for economic policy analysis, CPB) In 1980-2003 there were too many reforms to test econometrically Qualitative analysis (literature research) gives us pre-selection of reforms Econometrics used to test the selection of reforms

5. Europe Methodology Qualitative analysis Fondazione Rodolfo Debenedetti Social Reforms Database Brandt et al LABREF Labor Market Reforms Database OECD economics surveys Literature review Ranking

6. Europe Dutch reform history

7. Europe Dutch reform history: Areas and instruments Reform areas –Disability –Sickness –Unemployment –ALMP –EPL Reform instruments –Level –Responsibility –Access –Duration –Stimuli

8. Europe Dutch reform history: Instruments

9. Europe Dutch reform history: Impacts Figure 3. Reform impact ratios by area and instrument Reform impact ratios by area sicknessDisabilityAlmpeplunemployment ratio 5/68/162/261/88/14 % 83%50%8%13%57% Reform impact ratios by instrument levelresponsibilityaccessdurationstimuli ratio 3/98/185/91/29/38 % 33%44%56%50%24%

10. Europe Econometric evidence: Model Two stage error correction model Estimation period 1980-2003 Reforms are represented by dummies First stage (long run) equation: Second stage (short run) equation:

11. Europe Econometric evidence: Dummies Reforms represented by Dummies Effects of reforms implemented in subsequent years difficult to measure Hard to distinguish between the impacts of dummies that are close to each other in time To reduce density of dummies some dummies represent multiple reforms

12. Europe Econometric evidence: Method Variables levelschanges (long run)(short run) Dependent variableSR unempl. rate PA Ratio0.644***0.795*** Exemption 57+ and Wassenaar-2.75***-1.03*** 1987 reform-1.31**-0.015 PES reform-1.73**-0.881** nABW-4.46***-0.850 Bonus for employment-0.860-0.650*** Red. of benefit duration-2.58*-0.034 Flexwet-1.37*-0.157 Business Cycle indicator -0.483*** R2R2 0.846 0.841 N27 *** = significant at 1%, ** = significant at 5%, * = significant at 10%

13. Europe Econometric evidence: Conclusions Econometric analysis confirms results from qualitative analysis Strong empirical evidence for the role of the business cycle Unemployment countercyclical Sickness and disability pro-cyclical

14. Europe Do OECD indicators correctly reflect our findings?

15. Europe Do OECD indicators correctly reflect our findings?

16. Europe Do OECD indicators correctly reflect our findings?

17. Europe Do OECD indicators correctly reflect our findings? Disability and sickness hardly discussed in the OECD literature No OECD indicators for disability and sickness Indicators on EPL and unemployment benefit replacement rates perform not so well ALMP indicator performs reasonably well

18. Europe Conclusions Policy conclusions –EPL and ALMP policy relatively unsuccessful –Sickness, disability and unemployment reforms relatively successful –Political business cycle influences reform timing OECD indicator conclusions –OECD indicators do not perform that well, except ALMP indicator –Sickness and disability not covered by OECD indicators

19. Europe Further research/refinement of research We did not take into account tax-based reforms Regress all reform efforts at total number of claimants There is a certain amount of subjectivity in the ranking of reforms in the qualitative analysis –Ideas for improvement?? Maybe count and analyse newspaper citations on these reforms? Possible selection bias? –Yes maybe, but: econometrics used only to confirm results of qualitative analysis and this it does. –Covariates would have become significant instead of the reforms Repeat this analysis for more countries