Chapter 17. Going national: Implementing the OECD Jobs Strategy

This chapter provides guidance for developing country-specific policy recommendations from the broad policy principles of the new OECD Jobs Strategy. To this end, it provides an illustrative procedure to identify countries’ main policy challenges and develops broad policy packages to address them. It also highlights the importance of considering countries' initial conditions – in terms of the state of the business cycle, fiscal and administrative capacity, past reforms, preferences and demography – for tailoring policy recommendations to country specific priorities, capabilities and needs.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Introduction

The new OECD Jobs Strategy provides a comprehensive set of policy recommendations organised around: i) the quantity and quality of jobs; ii) labour market inclusiveness; and iii) resilience and adaptability. Using the new Jobs Strategy Dashboard, this chapter maps these guidelines to country-specific labour market contexts by identifying countries’ main policy challenges and presenting examples of policy packages to address them.

Countries’ policy challenges are based on underperformance on one dimension of the Dashboard relative to other dimensions, implying that there can be large differences in absolute performance between countries sharing the same challenge. There can also be large differences between countries in terms of business cycle conditions; fiscal and administrative capacity; past reforms; social preferences and demography that need to be accounted for when developing country-specific policy recommendations. The examples of broad policy packages developed here should thus be seen as a starting point for more granular and nuanced country-specific recommendations.

The remainder of the chapter is structured as follows. Section 17.1 situates the chapter in the overall context of the new OECD Jobs Strategy and describes an illustrative procedure to derive country-specific policy recommendations. Section 17.2 develops broad policy packages that address the main policy challenges emerging from this procedure. Section 17.3 emphasises a range of additional factors that will have to be taken into account to tailor policy packages to country-specific circumstances.

17.1. An illustrative procedure of how to identify policy challenges

To assist countries with the implementation of the new OECD Jobs Strategy, this chapter describes an illustrative procedure for translating its general recommendations into country-specific ones. To this end, it identifies country-specific performance challenges using the dashboard of the new OECD Jobs Strategy (Chapter 3) and presents elements of broad policy packages to address them. These challenges and policy packages constitute a starting point for formulating fully-fledged country-specific reform strategies, which also should fully take account of the country-specific context, such as past reforms and social preferences (Figure 17.1).

The OECD Jobs Strategy dashboard describes labour market performance using indicators of job quantity, job quality and inclusiveness (Panel A) as well as indicators of framework conditions for resilience and adaptability (Panel B). As an illustration of how the dashboard and the analysis of the Jobs Strategy could be used to identify policy challenges, this chapter presents areas of largest underperformance relative to other areas (relative performance), with each country being assigned one challenge from Panel A of the dashboard and one from Panel B.1 While this procedure allows establishing performance priorities for all countries, there may be large differences in absolute performance even among countries sharing the same challenge. For instance, countries with job quantity as the main challenge may include countries with below-average performance in job quantity as well as countries with above-average performance (if they are performing even better on job quality and inclusiveness). While this procedure allows for an easy identification of country-specific challenges in all countries, it can easily be amended in the context of specific countries, by taking account of a broader set of challenges or selecting them differently between policy objectives.

17.2. Identification of policy challenges and examples of broad policy packages

Broad performance areas

On average, countries with job quantity as a performance challenge also do worse than the OECD average in terms of job quality and inclusiveness (Figure 17.3). Countries with inclusiveness as the main challenge perform around the OECD average in terms of job quantity and job quality, whereas countries with job quality as the main challenge typically outperform the OECD average in job quantity and inclusiveness. Regarding the performance areas of Panel B, countries with a challenge in one area tend to outperform the OECD average in other areas.

Dissecting policy challenges by broad performance areas

Even countries with the same challenge based on relative performance can differ importantly in terms of absolute performance (Figure 17.4). For instance, Denmark performs relatively worse in job quantity than in job quality or inclusiveness but performs above the OECD average in job quantity (it does well in terms of absolute performance), whereas other countries with job quantity as the main challenge, such as Greece, Italy and Spain, perform well below the OECD average.

Relative performance across the sub-indicators of job quantity, job quality and inclusiveness may also differ significantly across countries even for countries with the same broad challenge (Figure 17.5). For instance, Canada, China, Japan, Korea and the United States share inclusiveness as broad performance challenge, but differ importantly in terms of relative performance across sub-indicators. In Canada, China and the United States, weak relative performance is mainly driven by high rates of low-income households, whereas in Japan and Korea, this is driven by relatively large gender gaps.

Elements of broad policy packages to address country-specific challenges

This sub-section presents a number of examples of broad policy packages to address country-specific challenges. Given large differences in absolute performance and in the economic and institutional context between countries sharing the same broad challenges, these policy packages should again be seen only as broad illustrations. Country-specific reform strategies would require a much more in-depth analysis. In this sub-section, special emphasis is given to possible synergies and trade-offs between policy areas related to job quantity, job quality, inclusiveness (Panel A) and resilience and adaptability (Panel B):

Countries with job quantity as the main challenge
- The majority of countries with job quantity as broad performance challenge, including Belgium, Finland, France, Greece, Italy and South Africa, also share the need to tackle high unemployment and foster productivity growth. This typically reflects weak job performance in terms of job creation and in some cases also weak labour force participation. Policies that promote job creation and productivity growth are likely to be mutually reinforcing. In Belgium, France and Greece, for instance, overly strict product market and employment protection rules may limit both productivity growth and job quantity. In Belgium, Finland, France and Italy underperformance on job quantity may also reflect high non-wage labour costs, which calls for reviewing the level and composition of labour taxes.
- A number of other countries, including Ireland and Spain, have room to enhance resilience. Poor job performance partly reflects a legacy of the global financial crisis. In many cases, macroeconomic and structural policies that strengthen resilience also improve performance in terms of job quantity in the medium run. Spain, for instance, experienced large and persistent employment losses following the global crisis of 2008-09 and the subsequent euro area crises which had not been fully reversed 2017.
- A few countries, including Turkey, need to enhance effective labour supply and improve skills. Lack of relevant skills represents a major barrier to employment. In Turkey, poor outcomes in student skills often reflect an inefficient use of resources which is also compounded by limited resources for education.
Countries with job quality as the main challenge
- The majority of countries with job quality as the main performance challenge, including Czech Republic, Hungary, New Zealand, Portugal, Russian Federation and Slovenia, would benefit from increasing earnings quality as well as productivity growth. Relatively poor performance in terms of job quality reflects low wages. Boosting productivity is key for achieving better working conditions, including higher wages. However, this is likely to require important structural reforms since these countries also underperform in terms of productivity growth. These can include reforms that reduce barriers to entry and exit of firms where they are particularly high such as in Slovenia, and the Russian Federation as well as making better use of R&D tax incentives and subsidies to promote the faster diffusion of innovation from leading to lagging firms (New Zealand and Portugal). However, on their own, such reforms are unlikely to achieve high levels of job quality. In some countries, such as Hungary and the Russian Federation, additional measures may be needed to promote job quality, for instance in the areas of occupational health and safety and social dialogue.
- Most other countries, including Estonia, Israel, Latvia, Lithuania, Slovak Republic and Poland, may need to combine measures to promote job quality, especially earnings quality, with measures to strengthen resilience. Policies to promote resilience, including a sound macroeconomic policy framework, can have the added benefit of raising job security by limiting employment losses during economic downturns and ensuring a rapid rebound. In turn, policies to promote job quality may have the added benefit of strengthening resilience. Estonia, Israel, Latvia and Poland, for instance, would benefit both in terms of resilience and job quality from strengthening social dialogue.
Countries with inclusiveness as the main challenge
- The majority of countries with inclusiveness as the main performance challenge would benefit from also promoting labour productivity growth, including Austria, Germany, Japan, Korea, Netherlands, Norway, Switzerland and the United Kingdom. Indeed, even though most of these countries perform above average in many important areas of job quantity, job quality and inclusiveness, they could do even better if they improved gender equality in the labour market. Depending on the nature of gender inequalities (see Chapter 10), this could be achieved by strengthening access to affordable, high-quality child care to promote female participation; enhancing work-life balance; promoting a more equal sharing of parenting responsibilities; and reducing labour supply distortions in the tax and transfer system. To promote labour productivity growth, Austria, Germany, Japan and Korea could reduce barriers to entry in services, such as professional licencing requirements, which would have the additional benefit of reducing barriers to work for low-qualified workers, thereby raising inclusiveness.
- Most emerging market economies have much room to improve inclusiveness and skills, including Argentina, Brazil, Chile, China, Costa Rica, Mexico and South Africa. Providing access to high-quality education is crucial to create equal opportunities for all segments of the population. In many emerging market economies, this could, for instance, be achieved by improving both educational enrolment and quality. Another way of improving skills and promoting inclusiveness in these countries would be to reduce high levels of informality, which could be achieved by increasing the benefits of formality, decreasing the cost of formalisation and improving enforcement methods.
- In a number of English-speaking countries, such as Australia, Canada and the United States, there is scope to promote inclusiveness, with a particular focus on reducing the low-income rate, and to strengthen resilience. In Canada and the United States, the share of the working-age population with low disposable income is large compared with the OECD average. This could be addressed by raising investment in skills, strengthening social safety nets and developing a comprehensive activation strategy, which would have the added benefit of strengthening the automatic fiscal stabilisers and thereby strengthen resilience. To address gender gaps in labour income, which are high in all countries in all of these countries, full-day childcare and primary education could be extended and taxes for second earners be reduced.

17.3. Integrating the country-specific context

While the above policy options provide illustrative examples, they do not yield operational country-specific policy recommendations. Apart from accounting for the magnitude of performance gaps, such operational recommendations require accounting for a range of other country-specific factors, including: macroeconomic conditions; fiscal and administrative capacity; past reforms, synergies and sequencing; social preferences; and demographic conditions.

Macroeconomic conditions and policies

Reaping the full benefits of reforms takes time. Product and labour market reforms significantly raise economic and labour market performance in the long run (Boeri, Cahuc and Zylberberg, 2015[1]). But structural reforms often involve significant reallocation of resources across firms and sectors that can result in short-term costs, notably in the labour market (Chapter 15).

The short-term effect of structural reforms depends on the state of the business cycle. For instance, reforms to employment protection have positive effects on employment and output when implemented during cyclical upswings, but can exacerbate shortfalls in employment during periods of slack (see Chapter 15 for more detailed discussion). A possible reason is that while in good times these reforms may spur hiring by reducing the cost of future dismissal, in periods of slack they may trigger instantaneous layoffs. By contrast, labour tax reductions or increases in public spending on activation have larger effects on output and employment during periods of slack (IMF, 2016[2]; OECD, 2017[3]).

Supportive macroeconomic policies can limit the short-term costs of structural reforms and promote their political viability. They can, for instance, enhance the positive effect of labour and product market reforms on employment in the short-run (IMF, 2016[2]). Moreover, supportive fiscal policy can be used to compensate the losers of reform (Høj et al., 2006[4]).

Fiscal and administrative capacity

Limited capacity to raise fiscal revenues can be a barrier to reform. Emerging market economies typically collect taxes of between 12 to 32% of GDP, while the average for advanced countries is around 35% (Figure 17.6). This suggests that countries with limited fiscal capacity face more difficulties to find the resources needed to adopt and implement reforms, especially in the areas of job quality and inclusiveness that often require raising social spending. For instance, Northern European countries such as Sweden and Denmark with strong fiscal capacity can implement relatively generous public income support and employment programmes to promote job quality whereas this is not the case in most emerging market economies. More generally, countries with limited fiscal capacity may need to prioritise reforms that are budget neutral, such as adjusting both taxes and expenditure to raise work incentives, rather than reforms that require financing high up-front costs, such as increasing spending on activation or strengthening the social safety net (IMF, 2012[5]).

Limited administrative capacity can be another barrier to reform. For instance, in many emerging market economies large informal sectors evade taxation and labour market rules. In these countries, labour market security needs to be promoted by other means than public income support and employment programmes, including by increasing the use of mandatory self-insurance based on individual saving accounts for those who can afford it and by providing a redistributive component for those who cannot rely on individual savings. The Chilean unemployment insurance system of individual unemployment saving accounts (Régimen de Seguro de Cesantía) in combination with a Solidarity Fund (Fondo de Cesantía Solidario) provides an interesting example of self-insurance combined with income support in the event of job loss for the poor (OECD, 2011[6]). Similarly, in countries such as Greece, Italy, Spain and Turkey, limited administrative capacity can hamper the effective implementation and delivery of active labour market programmes.

In addition to improving fiscal and administrative capacity, stepping up the public administration’s transparency, accountability, capacity and professionalism — including at the local level — and improving the business environment are preconditions for successfully implementing reforms. In emerging market economies such as Colombia, Costa Rica and Mexico the capacity of the public sector is weak, both in terms of human and financial resources, corruption remains widespread and the rule of law is weak (Kaufmann, Kraay and Zoido-Lobaton, 1999[7]). These factors hinder the effective implementation of policies (Chapter 16). In these countries, policy action should aim at being particularly simple, transparent and easily accountable. For instance, this may imply erring on the side of less conditionality and less targeting of social benefits while limiting their generosity.

Past reforms, synergies and sequencing

When synergies between policies exist, combining and coordinating them produces better outcomes than implementing them separately. For example, a country that simultaneously implements reforms in the areas of education, activation and innovation rather than focusing on a single policy area is more likely to achieve positive outcomes. Promoting higher educational attainment without implementing policies that support innovation and skills matching might result in skills mismatch, underemployment, dissatisfaction and emigration (OECD, forthcoming[8]).

As discussed in Chapter 15, some reforms are a prerequisite for the success of others. For example, ideally it would be better to have product market liberalisation preceding labour market reforms. The rationale is that pro‐competitive product market reforms reduce market power, facilitate the entry of new firms and, in turn, promote higher economic activity and labour demand (IMF, 2016[2]; Høj et al., 2006[4]; Blanchard and Giavazzi, 2003[9]).2 As a consequence, product market reforms could improve the chances of reforming employment protection rules by creating employment opportunities, thereby reducing the incentives for incumbent workers to protect their jobs (Koeniger and Vindigni, 2003[10]; Dias Da SIlva, Givone and Sondermann, 2078[11]).

Activation and social protection measures can complement each other, as there are important synergies between income or in-kind support on the one hand (“passive policies”) and activation measures (“active policies”) on the other (Chapter 9). Usually, incentives operating through existing social protection measures (i.e. threat of benefit withdrawal, bonus payments or different forms of sanction) can encourage participation in activation-related programmes. Similarly, a system of effective income support payments makes it much easier to target activation measures such as training, or job search assistance (OECD, 2015[12]). Such targeting can, in turn, create the fiscal space and the political support that is needed to ensure adequate support for families who need it most. For this reason, the effectiveness of active policy measures might be more limited in countries with lower levels of social benefits or where benefits can only be received for a short duration of time. As a consequence of this complementarity, policy adjustments in one area often indicate a need for reviewing provisions in the other. For instance, to maintain a balance between rights and responsibilities, extensions of unemployment benefit duration or coverage may need to be accompanied by measures to maintain the activation approach for a growing number of benefit recipients. The Nordic countries, for example, have achieved high employment rates despite high social benefits by imposing strict eligibility and job search requirements.

Labour market reforms that raise labour supply, such as activation policies, will boost employment when the extra supply gets absorbed by rising labour demand. Activation policies can be expected to work best if they are embedded in a comprehensive policy framework that facilitates job creation and dynamic labour markets. For instance, reforms that increase wage flexibility as well as product and capital market reforms that encourage job growth can enhance the effectiveness of activation policies. Additionally, the effectiveness of active labour market policies is enhanced by lower entry barriers in product markets and higher public sector efficiency (Andrews and Saia, 2016[13]).

Preferences for redistribution and social dialogue

Preferences for redistribution vary substantially across countries (Alesina, Giuliano and Alesina, 2009[14]). Countries with strong preferences for redistribution (e.g. the Nordic countries) typically promote inclusiveness through the tax and transfer system (Causa and Hermansen, 2017[15]). Where the tax and transfer system is less redistributive, inclusiveness could be promoted by investing in the education to provide equality of opportunity and/or by direct interventions in market outcomes. Such interventions include supporting earnings at the lower end of the income distribution by using minimum wages and activation policies that facilitate re-employment.

Specific country preferences towards social dialogue and collective bargaining, rather than state- and market-oriented approaches, are another element that need to be taken into account when developing country-specific recommendations. For example, in some countries, collectively-agreed wage floors are used to ensure that workers at the bottom of the wage ladder also benefit from economic growth. By contrast, in the absence of collective bargaining agreements, the same policy objective may be achieved by using statutory minimum wages. For example, Australia does not have sector level bargaining, but sets industry-level minimum wages that vary according to occupation through a system of wage regulation (Modern Awards).

In countries with strong social dialogue, social partners may partly substitute for the government in providing integrated packages of labour market policies, such as training and retraining opportunities as well as career guidance and information to foster mobility. For instance, Jobs Security Councils (JSCs) in Sweden provide an example of continuous and tailored re-employment services for displaced workers that are provided by the social partners (i.e. employer federations in close collaboration with union federations), rather than by the public employment services or other public actors (Chapter 14).

Demographic factors: Ageing and migration

Declines in fertility rates and increases in life expectancy are leading to population ageing in many OECD countries, which is raising the old-age dependency ratio (the ratio of older people to the working-age population and shifting the composition of the workforce from young to older workers (Figure 17.7). Countries with ageing populations are also likely to face shortages of qualified labour, which have implications for potential growth and the sustainability of social insurance systems (IMF, 2018[16]; OECD, 2017[17]). Population ageing is also likely to lead to important changes in industrial and occupational structure as consumer tastes change, with demand likely to shift from durable goods towards services.

In countries with rapidly ageing populations, such as Germany, Italy, Japan and Slovenia, it is important to strengthen skills, workplace and activation policies that allow, support and encourage people to continue working at older ages as well as policies promoting female labour force participation and the integration of disadvantaged groups, including migrants. Pension reform needs to go together with skills policies that focus on adapting the skills of individuals to changing labour market needs. In this context, it will be particularly important for governments to design high-quality, life-long, learning systems that will permit adults to regularly update, upgrade, and acquire new skills and competences in order to stay employed and/or find new employment. A comprehensive activation strategy for older workers requires a combination of rewarding work at an older age, removing disincentives on the side of employers to hiring and retaining older workers and improving the employability of older workers. Reducing labour taxes for older workers and policies that improve the job-matching process can encourage individuals to keep working or seek employment.

By contrast, in many emerging market economies with a young and growing workforce (e.g. India, Mexico, Saudi Arabia), the challenge will be to harness the full potential of the demographic dividend, ensuring that youth have the skills necessary to be gainfully employed and make a contribution to economic growth. Skills and educational policies, in these countries, should focus on providing high-quality initial education to all individuals, particularly by increasing educational attainment and by reducing school dropout rates, while ensuring youth are provided with skills that are needed in formal jobs. Additionally, these countries should focus on ensuring a smooth transition from school to work, for example by improving the capacity of the public employment services to reach out to youth, by strengthening family-friendly policies, and by providing youth with adequate income support.

In conjunction with other policies, migration can make a significant contribution to address demographic imbalances across countries and regions. In most OECD countries, immigration can help address shortages, but in many cases there is also a need for accompanying integration policies (Chapter 11). This mainly relates to migrants coming for reasons other than employment, such as family (including accompanying family of workers) or humanitarian reasons. Indeed, such non-labour migration accounts for the bulk of immigration to most OECD countries. An example of good practice in integration is Sweden, where tailor-made introduction courses combining language and other training as well as work experience, are provided for refugees to facilitate stepwise integration into the labour market. In order to encourage employers to provide migrants with initial labour market experience, employers hiring newly-arrived refugees are able to benefit from a number of subsidised employment schemes (OECD, 2016[19]). Countries with high shares of low-educated migrants may also need to review their educational policies to ensure equal opportunities for children of these immigrants in terms of schooling as a precondition to avoid marginalisation in adulthood. In this context, increasing access to early childhood education with a specific focus on children with language obstacles is particularly important.

Conclusions

This chapter has provided guidance on how to bring the policy recommendations of the new OECD Jobs Strategy to the national level. It has provided an illustration on how performance challenges could be identified for each country, by focusing on relative performance weaknesses (weaknesses in one area of labour market performance relative to another). Additionally, the chapter provides a set of broad policy packages to address the main policy challenges. Even for countries with potentially similar broad priorities, disaggregate performance gaps and the country-specific context differ significantly. Finally, the chapter has highlighted a range of other factors that need to be accounted for to develop operational country-specific policy recommendations, including macroeconomic conditions; fiscal and institutional capacity; past reforms; sequencing; social preferences; as well as demography.

References

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Notes

← 1. All indicators are standardised (mean zero and standard deviation of one), with negative numbers representing areas of underperformance. For countries that are performing above average in all the dimensions, priorities are established as areas where performance is weaker (i.e. indicators where the country scores closer to the average). The indicators used for the country-specific diagnostic process are: summary indicators of job quantity, job quality, inclusiveness, resilience and two measures of adaptability (labour productivity growth and student skills). This set of indicators is widely available across countries and allows a general assessment of countries’ labour market performance and of their ability to face the opportunities and the challenges of the future of work.

← 2. Product market reforms should also be prioritised because they have the highest short-term gains, they boost output regardless of overall economic conditions and because they do not weigh on public finances (IMF, 2016[2]).

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