Implementing the OECD Jobs Strategy

High and persistent unemployment in many OECD countries has been increasingly seen as evidence of the malfunctioning of product and labour markets and of the inadequate recognition of interactions between macroeconomic and structural policies. Since the completion of the 1994 OECD Jobs Study, which proposed a balanced and wide- ranging set of policy recommendations to reduce unemployment, raise employment and increase prosperity (see Box 1), work at the OECD has continued on two tracks. First, a number of thematic reviews by the OECD Secretariat have further explored appropriate policy orientations in specific fields.* Second, the Economic and Development Review Committee (EDRC) has been mandated by OECD Ministers to examine the implementation of the OECD Jobs Study recommendations in individual Member countries. The results of this work, undertaken for each of the 25 countries which were OECD Members when the Jobs Study was presented to Ministers in 1994, have been published as separate chapters in OECD Country Surveys on the theme of Implementing the Jobs Strategy. Other elements of country surveys, including both the in- depth structural chapters and chapters dealing with the setting of macroeconomic policies, have also provided elements to the implementation of the Jobs Strategy. Based on the EDRC review process, but drawing also on thematic reviews and recent work by the Secretariat, this paper presents the key lessons learned from the country- specific work. An annex presents a set of synoptic tables, summarising the country- specific recommendations for implementing the OECD Jobs Strategy. A more comprehensive and detailed report, giving the background to the lessons presented here, will be published under the title Implementing the OECD Jobs Strategy: Member Countries’ Experience.

Overall, the EDRC reviews of Member countries’ experience with implementation of the OECD Jobs Strategy give rise to both hope and caution. A clear message from the review process is that governments, sometimes in concert with the social partners and taking due account of the specificities of each country, can introduce comprehensive reforms along the lines of the recommendations in the OECD Jobs Study which will expand employment opportunities and reduce structural unemployment. However, as will be explained below, the EDRC reviews have revealed that only a few countries have introduced and sustained policy reforms in a sufficiently wide- ranging and consistent way to achieve such an improvement in labour market performance. Implementing the OECD Jobs Strategy requires commitment by the government and broad political support to be maintained over time. It sometimes involves difficult trade- offs between different policy concerns. And, depending on national traditions and institutional features, explicit or implicit commitment by the social partners may also be required. Moreover, special interest groups often put up strong resistance to needed reforms. Pulling together their different experiences can help countries to learn from each others’ successes and failures, hopefully contributing to the implementation of successful policies in the future. In what follows, the main lessons learned from the country review process have been grouped under six broad headings.

* The Secretariat reports on four thematic reviews were presented to Ministers at their meeting in May 1996 and were summarised in the Secretary- General’s report to Ministers on Pushing Ahead with the Strategy.

They are: Enhancing the effectiveness of active labour market policies; Making work pay: A thematic review of taxes, benefits, employment and unemployment; Interactions between structural reform, macroeconomic policy and economic performance; and Technology, Productivity and Job Creation. A fifth thematic review is under way on policies to enhance entrepreneurship.

Box 1. u The OECD Jobs Strategy

1. Set macroeconomic policy such that it will both encourage growth and, in conjunction with good structural policies, make it sustainable, i.e. non-inflationary.

2. Enhance the creation and diffusion of technological know-how by improving frameworks for its development.

3. Increase flexibility of working-time (both short-term and lifetime) voluntarily sought by workers and employers.

4. Nurture an entrepreneurial climate by eliminating impediments to, and restrictions on, the creation and expansion of enterprises.

5. Make wage and labour costs more flexible by removing restrictions that prevent wages from reflecting local conditions and individual skill levels, in particular of younger workers.

6. Reform employment security provisions that inhibit the expansion of employment in the private sector.

7. Strengthen the emphasis on active labour market policies and reinforce their effectiveness.

8. Improve labour force skills and competences through wide-ranging changes in education and training systems.

9. Reform unemployment and related benefit systems – and their interactions with the tax sys-tem – such that societies’ fundamental equity goals are achieved in ways that impinge far less on the efficient functioning of the labour markets.

10. Enhance product market competition so as to reduce monopolistic tendencies and weaken insider-outsider mechanisms while also contributing to a more innovative and dynamic economy.

Over the 1990s, unemployment in the OECD area as a whole rose from its already unacceptably high level at the end of the previous decade. Most of this increase was cyclical, but structural unemployment may also have gone up. Area- wide developments mask considerable differences across Member countries. In part, this reflects different cyclical positions. But estimates of structural unemployment rates have also shown diverse trends (Table 1), often moving in the same direction as actual unemployment rates. By their nature, such estimates are subject to both numerical and conceptual uncertainties, although commonly- used measures of it tend to be highly correlated. It is significant that changes in estimated structural unemployment rates have generally gone together with corresponding movements in a range of other labour market indicators such as long- term unemployment, the number of discouraged workers and employment rates. This suggests that changes in structural unemployment in most cases repre-sented real changes in labour market conditions, not just uncertainty of estimation or re-classifications of persons without ordinary jobs. Among individual countries, already high structural unemployment appears to have risen further over the 1990s in Spain, Italy and, to a minor extent, France. In Finland and Sweden, structural unemployment has risen abruptly from previous low levels. A number of other small European countries with traditionally low unemployment rates also recorded increases in structural unemployment. The big non- European Member countries, including the United States, Japan and Canada, have had broadly stable structural unemployment rates, as have some European countries. The most encouraging developments were registered in the United Kingdom, Ireland, Netherlands and New Zealand, where falls in structural unemployment rates either began or continued in the course of the 1990s.

At present, some countries, including the United States, Japan, Iceland and Norway combine low unemployment with high rates of labour force participation. By contrast, France, Italy, Belgium, Spain and, despite strong recent improvements, Ireland combine high structural unemployment with low labour force participation. Other countries are in intermediate positions.

Developments in structural unemployment over the 1990s to a large extent reflect the progress made in implementing the OECD Jobs Strategy. Some OECD countries had introduced a number of main 13 recommendations of the OECD Jobs Study well before the completion of the study. Indeed, the United Kingdom and New Zealand have pursued both wide- ranging and deep structural reforms, beginning already in the early to mid- 1980s. These are also among the countries where structural unemployment has fallen – since the second half of the 1980s in the United Kingdom, which began earlier to introduce structural reform, and since the early 1990s in New Zealand. Based on a more gradualist approach, the Netherlands has also pursued a comprehensive reform programme starting in the first half of the 1980s, with positive results in the form of falling structural unemployment since the second half of that decade. In Ireland, macroeconomic stabilisation began at the same time while structural changes commenced in the second half of the 1980s; structural unemployment has declined during the 1990s.

The reform processes in these four countries share a number of common features. One is that they were all initiated at a time when serious economic disequilibria had made it clear that existing policies could no longer be sustained. Another is that all four countries put in place stability- oriented macroeconomic frameworks focused on sound public finances and effective control of inflation. Even though the countries were not always successful in implementing these frameworks, by 1996 Ireland, the Netherlands and New Zealand combined inflation below 2 per cent (measured by the GDP deflator) with general government balances which were either in surplus (New Zealand) or had deficits of less than 3 per cent of GDP. Nevertheless, reform processes also differed between these countries, reflecting different starting positions, not least as regards structural policies. Examples include:

– The Netherlands which had high labour costs, including very high payroll taxes, focused on achieving general wage moderation through centralised bargaining and tax reductions, lowering minimum wages, including in particular for young workers, and scaling back payroll taxes, especially on low- wage groups.

– The United Kingdom had a heritage of nationalised industries and troubled labour relations and gave priority to product market reform, including privatisation, and reform of industrial relations.

– New Zealand, which was arguably among the most protectionist OECD countries at the beginning of the 1980s, gave early priority to trade liberalisation and reduced government intervention in its comprehensive reform programme.

– Ireland, which was faced with a dependency problem, in the presence of unemployment and poverty traps due to interaction between tax and transfer systems, and had a tradition of weak education effort, has taken action to lower the generosity of unemployment benefits, reduce marginal effective tax rates and improve human capital formation.

More recently, Canada and Australia have carried out significant and wide- ranging reforms, but the results are yet to be seen. In other countries, reforms have typically been less wide- ranging though individual reforms have sometimes been significant. In some countries, including Germany, France, Italy and Belgium, political constraints prevented greater breadth and/ or depth of reform (see below).

In the United States, Japan and Norway, policy settings prevented a significant rise in unemployment from occurring in the first place. Indeed, the experience of those countries may provide useful lessons for other countries aiming to improve labour market performance. Arguably, the three countries managed to maintain low unemployment because policies in important respects followed the main thrust of the OECD Jobs Strategy, though with clear differences of emphasis between the countries. Thus, the United States has traditionally operated and adapted its structural policies so as to be consistent with flexible labour and product markets while also placing emphasis on macroeconomic policies geared towards sustainable high employment. In Japan, institutional features have allowed high flexibility of wages and working hours at the same time as favouring geographical mobility and functional versatility of labour within enterprises. And in Norway, macroeconomic stability has been given priority, against the background of the flexibility provided by resource revenues, and emphasis has been given to human capital formation. Nonetheless, even in these three cases, areas in which policy can be improved were identified by the EDRC.

Initial, and different, starting positions of countries have conditioned progress in the 1990s in implementing the Jobs Study recommendations. Partly as a result, progress within specific structural policy areas has differed considerably from country to country (see Box 2). Hence, it has proved difficult to draw strong, area- wide conclusions at the EDRC reviews about reforms in specific areas in the 1990s. However, among the few general tendencies, a characteristic difference of approach can be identified between the countries pursuing comprehensive reforms and those adopting a more piece- meal approach. This relates to the impact of reforms on core constituencies in the labour market:

– Reforms in the United Kingdom, Canada, Australia, the Netherlands and New Zealand have typically affected very broad groups in the labour market, including those which may be characterised as “insiders”.

– In contrast, reforms in some continental European countries, which have not been successful in bringing down structural unemployment, have often affected persons at the margin of the labour market but with very little impact on core groups:

l For example, instead of relaxing general employment protection provisions, some governments have preferred to introduce short- term contracts and liberalise employment protection for part- timers or workers in small firms (e. g. Germany, France, Belgium).

l Similarly, few countries have made large cuts to central parameters of unemployment benefit systems, such as replacement rates or the maximum duration of benefits (Table 2), but many have tightened rules governing eligibility for benefits and controls on job- search behaviour.

Box 2. Prominent structural policy reforms in the 1990s

For each of the main structural policy fields reviewed in Chapter II of the background report, this box presents some of the most significant policy developments so far in the 1990s:

Transfers and taxes. Unemployment benefit support levels or effective durations have been cut back in the United Kingdom, Austria, Denmark, Ireland, the Netherlands, Spain and Sweden, whereas the generosity of unemployment and related welfare benefits was increased in Italy, Greece, Iceland and, to some extent, Switzerland. No other countries made significant changes to these parameters but many countries tightened eligibility, availability or willingness- to- work requirements, as well as rules concerning temporary layoffs. Invalidity schemes have been tightened in Italy, the Netherlands and Norway. Possibilities for retirement before the statutory retirement age have been tightened in France, Italy and Greece, while in a number of countries decisions have been taken or are under implementation to raise standard retirement ages (Germany, Italy, United Kingdom, Australia, Belgium, New Zealand, Portugal, Switzerland). Action has been taken to reduce high marginal effective tax rates on low incomes in France, the United Kingdom, Canada, Australia, Denmark, Ireland, the Netherlands, New Zealand and Sweden, while measures to reduce unemployment traps through the use of employment- conditional benefits were introduced or expanded in the United States, the United Kingdom, Canada, Australia, Ireland and New Zealand. The average tax wedge on production workers was reduced in the Netherlands, Turkey and, to a smaller extent, Norway but significantly increased in Australia, Finland and Greece. Within an overall unchanged tax wedge, there was a shift away from payroll taxes in France and Sweden, but in the opposite direction in Denmark.
Employment protection legislation. The United Kingdom, Portugal and Spain significantly eased employment protection for permanent workers, with further, future easing agreed between the social partners in the latter country. In contrast, the legislation became tighter in France and Luxembourg. Germany and Australia first tightened and then relaxed these policies. Italy, Spain and Sweden allowed the use of temporary work agencies, while restrictions on fixed- term contracts were eased in Belgium and tightened in Spain.
Wage formation. The most comprehensive liberalisation of the industrial relations framework resulted from implementing the Employment Contracts Act in New Zealand in 1991. In contrast, wage formation in Belgium has become increasingly influenced by government intervention. Most countries have made little change to industrial relations frameworks though Australia is in the process of implementing significant reforms with the aim of making wage formation more decentralised. A number of European countries have pursued tripartite agreements. Significant relative reductions in legal minimum wages have taken place in the Netherlands and New Zealand. France, Belgium and the Netherlands have significantly reduced non- wage labour costs for low- wage workers. Some countries have taken action towards establishing identical industrial relations frameworks in the public and private sectors (Italy, United Kingdom, Australia and New Zealand) and to ensure similar patterns of wage formation (Italy, New Zealand, Sweden).
Working- time flexibility. Regulations restricting unusual working hours were eased in France, Italy, Finland, Greece and Spain, but measures to discourage overtime were introduced in France and Finland. At the same time an overall maximum on weekly work hours was enacted at the EU level and, by extension, in the non- EU members of the EEA. Regulation concerning part- time work was eased in France, Italy, Austria, Greece and Spain and tax incentives for part- time work have been given in France, Italy and Spain.
Active labour market policy. Emphasis on job- search assistance has generally gained in importance in English- speaking countries, Austria, Belgium and Switzerland but increased caseloads have made it difficult to maintain traditionally high ambitions in this area in some Nordic countries. In a major innovation, the market for employment services has been made fully contestable in Australia and public monopolies on job placement services have been eliminated in Germany, Austria, Denmark and Finland.
Education and training. The length of compulsory education has been extended in Belgium, Iceland, Mexico, New Zealand and Norway, while national testing at key stages has been introduced in France, England, New Zealand, Sweden and Spain. Curricula and school governance have been reformed in several countries, while the United Kingdom and New Zealand have introduced greater freedom in choice of school. Various steps to strengthen vocational education have been taken in English- speaking countries, Japan, France, Italy, Austria, Finland, Netherlands, Norway, Portugal, Spain and Switzerland. In recognition of the investment aspect of higher education, tuition fees in public universities have been raised in the United States, Australia and New Zealand, but they have been abolished in Ireland. Denmark, Spain and Sweden have strengthened adult education.
Product market competition. The creation and deepening of regional trade blocks, including NAFTA, the EU Single Market and the customs union between the EU and Turkey, together with further trade liberalisation as a result of the Uruguay Round, increased competition from imports in almost all OECD countries, and unilateral reductions of trade barriers took place in Australia, New Zealand and Switzerland. Various aspects of competition law were strengthened in a large number of countries. Measures to ease general licensing requirements have been taken in the Netherlands and barriers to inter- regional competition are being lowered in Canada, Australia and Switzerland. Retail competition has been strengthened by less restrictive shop- opening hours (Germany, Italy, Austria, Denmark, Greece, Netherlands) and an easing of restrictions on largescale stores (Japan), though France has tightened the latter type of regulation. Competition in the financial sector is due to increase in Japan, Mexico and EU countries, while some liberalisation of professional services has taken place in Australia and Ireland. Early liberalisation steps have been taken in telecommunications (United States, United Kingdom, Australia, Finland, Sweden), electricity (United Kingdom, Australia, Finland, Norway, Sweden) and railways (Germany, United Kingdom, Denmark, Mexico, Sweden), and EU- wide liberalisation is taking place in telecommunications, airlines and electricity sectors.
Innovation and technology. Japan, Denmark, Finland and the Netherlands have taken steps to increase public R& D spending, whereas measures to increase the efficiency of spending have been taken in the same countries and in the United States, the United Kingdom, Austria, Norway and Sweden. Tax incentives for private R& D activity have recently been increased or amended to increase their efficiency in Canada, Australia and the Netherlands. A number of countries have taken initiatives to improve the provision of finance for innovation through development of venture capital markets. Japan has strengthened its system of intellectual property rights, and the GATT agreement in 1994 included a significant step towards the establishment of international minimum standards of patent protection.
Entrepreneurship. Germany, Mexico and the Netherlands have taken measures to reduce “red tape” for business start- ups and Germany has also extended exemptions for very small companies from employment protection requirements. Measures to ease financing constraints for small and medium- sized companies have been taken in Japan, Germany, France, Italy, the United Kingdom, Canada, Australia, Austria, Belgium, Finland, the Netherlands, New Zealand, Norway and Sweden. In Germany, France and Austria, steps have been taken to strengthen links between SMEs and research centres.

A key reason for slow and sporadic implementation of the OECD Jobs Strategy is the perception that undertaking reform involves conflict with policy objectives concerning equity and social cohesion. In particular, concern has been expressed in some quarters that the Jobs Strategy recommendations to enhance wage flexibility and to reform social transfer systems would be at odds with the policy objectives of ensuring some degree of equity across members of the labour force or the population at large. The EDRC reviews did not provide conclusive evidence as to the nature and magnitudes of any potential trade- offs, though in some cases it was suggested that these objectives do not necessarily conflict when seen in a dynamic perspective. For example, increased employment as a result of policy reform will tend to offset at least partly the impact of increased wage- rate dispersion and restricted social transfers on income distribution. Moreover, there is evidence considerable mobility of individuals over time within the wage scale, implying that in some cases low- paid employment may be a steppingstone to better pay. And lower relative incomes at the bottom of the scale may raise incentives for investment in human capital by groups who would otherwise have made little such investment; the existence of this kind of linkage is supported by evidence that, across countries, university graduation rates tend to be higher where the financial rewards to such education is higher. Such an effect in turn could reduce income dispersion over the longer run and assist the adaptation of the workforce to changing skills requirements.

In spite of these arguments, representatives from a number of countries at the EDRC considered that there was a trade- off between horizontal equity and employment objectives but at the same time argued that its strength was susceptible to policy influence. However, for two very different sets of reasons, representatives from other countries rejected the notion of a trade- off. Thus, representatives from some English- speaking countries saw low unemployment as an essential condition for, or element of, horizontal equity. And those from some continental European countries saw equity as a more fundamental goal than low unemployment.

In addition to the traditional arguments stressing market failure as a reason for government involvement in education, training and active labour market policies, many countries see these policies as a way of supporting horizontal equity. Some, most notably France, Belgium and the Nordic countries, resist a wider distribution of wage rates as a means to reduce unemployment and instead rely on these policies to bring the dispersion of individual productivity levels into line with the prevailing wage distribution. However, a compressed wage structure and generous social transfers limit the financial returns to private investment in human capital, and it is not clear to what extent public expenditure can compensate for weaker incentives for private investment in this area. There is also a question mark over the effectiveness of much public spending on active labour market policies, suggesting a need for further efforts to raise their efficiency if they are to play a substantial role in affecting the distribution of individual earnings capacities. Thus, it remains an open question whether a policy approach that sees public intervention in post- compulsory education, training and active labour market policies as a substitute for relative wage flexibility is effective, let alone cost- effective, particularly in a world of rapid structural change where shifts in demand for particular skills are likely to exceed the pace at which skill supplies can be adjusted through education and training. At the same time, however, there is also concern about the effectiveness of relative wage signals in influencing human capital investment, not least because increased inequality of income, in a context of imperfect capital markets, may prevent those at the bottom of the income distribution from investing in their own or their children’s education. The recommendations given by the EDRC may be seen as favouring a combination of the two policy approaches, relying both on the market mechanism, through relative wage signals, and government support to education in the pursuit of equity and employment objectives.

Delegates to the EDRC from some countries, including France, Austria and Belgium, have also cited fear of negative repercussions on social cohesion as a reason for adopting a measured and incremental approach to reform. Such repercussions are both undesirable in their own right and may also entail high economic costs. At the same time, however, high and persistent unemployment is itself likely to seriously impair social cohesion.

Concern for social cohesion by no means implies a lack of policy action. Among the countries where structural reform programmes and macroeconomic stabilisation policies were sufficient to bring about a fall in structural unemployment, the Netherlands and Ireland are examples of countries introducing these policies through a consensual process, involving the social partners and clearly not threatening social cohesion. And, while the reform programmes in the United Kingdom and New Zealand were not implemented through a formal process of consensus, they have in fact met with considerable acceptance by the general public, as indicated by the fact that there is little political support for wholesale reversal of these reforms. Thus, the experience of these four countries suggests that there are different approaches to successfully implementing the Jobs Strategy, depending on national traditions and institutions.

There are also similarities across countries. A crucial common feature facilitating the reform processes both in the Netherlands, and, to some extent, Ireland, on the one hand, and in the United Kingdom and New Zealand, on the other hand, may have been the notion that individual reforms were part of a wider programme or strategy. Hence, specific reforms that affected particular groups met with less resistance because they were seen as part of an overall strategy affecting much wider groups and thereby possessing an element of fairness, which is an essential factor working for social cohesion. In order to achieve broad political support for reform in general, and a strategy consisting of many individual reforms in particular, effective communication is of vital importance. Where governments have failed to communicate with the public as well as legislators on the objectives of and constraints to reform, the result has often been lack of understanding and resistance to policy change.

Seeing structural reforms as part of an overall strategy is also important because reforms in one area produce better results if other areas are also reformed. The EDRC review process has confirmed the importance of one of the OECD Jobs Study conclusions that broadbased reform is likely to be more effective than reform focused in particular areas. A few prominent examples of such interactions include:

– Increasing incentives for seeking and accepting jobs is likely to be more effective when, on the one hand, product market reforms have ensured that labour demand will react swiftly and significantly to changes in wages and, on the other hand, regulations governing industrial relations, minimum wages and employment protection are reformed in ways which ensure that such a wage response will be forthcoming swiftly.

– The full benefits of increased product market competition will be reaped only if sufficiently flexible labour markets allow a swift reallocation of labour.

– Easing employment protection legislation may, by raising turnover in the labour market and the supply of vacancies, enhance the effectiveness of active labour market policies as well as the enforcement of availability for and willingness to work criteria in unemployment benefit systems.

– Where other transfer schemes such as invalidity, early retirement, social assistance etc. are comparable in generosity to unemployment benefits, tightening of the latter scheme is likely to be more effective in terms of reducing overall under- utilisation of labour, as opposed to measured unemployment, if accompanied by tightening of the former schemes. Conversely, reducing the generosity of other transfer programmes may be ineffectual without tightening of unemployment benefits.

Macroeconomic conditions are very important for labour market outcomes. An appropriate medium- and long- term framework for policies is a precondition for macroeconomic stability. In the past, fiscal imbalances and uncertainty about medium- term inflation prospects led to high real interest rates. These, together with the general climate of uncertainty created by unsustainable policies, increased the cost of capital and reduced incentives for engaging in productivity- enhancing innovation activity. The result was reduced scope for real wage increases. Where real wages did not adjust flexibly, unemployment increased. This effect, highlighted at the EDRC review of France, underlines the importance of undertaking fiscal consolidation and maintaining price stability. In contrast, it has sometimes been argued that moderate inflation may allow more rapid changes in relative wages and prices than in conditions of price stability, when resistance to reduce nominal prices and wages may retard adjustment, and also may enhance aggregate real wage flexibility in those countries where multi- layered wage bargaining puts a floor under wage increases. However, the counter- argument, presented at the EDRC review of Canada, is that once confidence in price stability has been established, wage floors should disappear and relative wage and price adjustment should be as quick as under moderate inflation, and with less uncertainty as to whether changes represent relative or generalised wage and price movements. As well, interest- rate premia will be lower.

Macroeconomic fluctuations should be minimised as far as is realistically possible within the scope given by other policy targets and constraints. Countries with the room for manoeuvre to counteract prolonged slumps in macroeconomic conditions have avoided strong increases in actual unemployment and estimated structural unemployment. In contrast, countries with relatively large fluctuations in unemployment have usually also seen stronger rises in structural unemployment because increases in unemployment which were initially cyclical in origin have often tended, over time, to become structural. Indeed, the countries where structural unemployment rose the most in the 1990s were largely the ones where the cyclical volatility of unemployment increased significantly (Figure 5), with extreme cases being some of the Nordic countries where strong economic downturns led to a persistent ratcheting up of unemployment. The view was expressed in the EDRC that, correspondingly, the United Kingdom and New Zealand may not have experienced a fall in structural unemployment commensurate with their structural reforms because cyclical fluctuations in unemployment became more pronounced in the past decade. Spain is a somewhat similar case where a further increase in the variability of unemployment since the mid- 1980s led to a rise in structural unemployment despite a number of important structural reform initiatives over the past decade. In contrast, the Netherlands succeeded in both reducing the extent of cyclical fluctuations and undertaking wide- ranging structural reform.

The extent to which cyclical unemployment increases are transformed into higher structural unemployment depends on structural policy settings. Therefore, structural policy setting consistent with the recommendations of the Jobs Strategy is likely not only to reduce unemployment directly but also to reduce the risk that unemployment persists following a cyclical weakness in activity.

Other synergies also exist between structural reforms and an appropriate setting of macroeconomic policies. For example, progress in structural reform leading to lower unemployment rates may increase the credibility of macroeconomic policies, with the endresult of reducing risk premia in interest rates and diminishing speculative pressures against currencies.

Conversely, structural reform will be more effective when introduced in stable macroeconomic conditions. For example, policies to increase work incentives through curbs on welfare provisions work best when the economy is generating a reasonable number of job vacancies. Similarly, when activity is high, relaxation of employment protection legislation may predominantly act to remove a disincentive for hiring, whereas such deregulation is more likely to be followed by labour shedding when undertaken in a weak business climate (as seems to have been the case recently in Italy). More generally, structural reform is usually aimed at giving greater scope for market forces. Improved functioning of markets and structural policy settings which are more sustainable should in themselves tend to raise confidence, but where structural reform leads to the destruction of economic rents – in the shape of excessive prices, wages or job security, or low work intensity – confidence could suffer. Macroeconomic policy setting should, as far as possible, take this into account. It is noticeable that the countries where structural unemployment has fallen have all had rapid enough growth for actual unemployment to fall. However, at the same time there is a risk, which judged by past policy developments is non- negligible, that when conjunctural conditions are relatively buoyant, the motivation could be weakened for undertaking necessary reform. Getting the balance right is obviously difficult, but commitment to a long- term strategy of reform, with individual reforms implemented as appropriate and within a stable macroeconomic framework, seems helpful.

Improved labour market outcomes in the countries that have gone the furthest in implementing the Jobs Strategy, including the United Kingdom, the Netherlands, New Zealand, and, to some extent, Ireland, and deteriorating conditions in some of those that have not, is an indication that the Strategy works. At the same time, it has become even more clear from the full cycle of country reviews at the EDRC how important the strategic aspect of reform is. First, pursuing a comprehensive approach to reform is likely to bring greater benefits than concentrating efforts in a few areas, even though the experience of the countries pursuing comprehensive reform suggests that the benefits of reform may still take a considerable time to show up. Second, comprehensive policy reform may ease some of the inherent policy trade- offs. By exposing wider segments of the population to structural reform, the process may be perceived as more fair, reducing strains on social cohesion. And reforms which negatively affect the real incomes of people without jobs will be perceived as less unfair if they are accompanied by other reforms aimed at getting these outsiders back into regular employment.

Against this background, the EDRC recommended to individual Member countries to go further in their implementation of the Strategy and gave detailed indications of high- priority reforms. On the macroeconomic policy side, most countries were judged by the EDRC to be in need of further fiscal consolidation and many also of tax reductions. This should be pursued within a medium- term framework and be built on concrete, identified measures, so as to be both credible and sustainable while avoiding precipitation. Such an approach would help to minimise short- term negative demand effects. At the same time, many countries were judged as having achieved or as being close to mediumterm price stability. Where this was combined with considerable slack, monetary policy should continue to support activity without undermining the primary goal of achieving and sustaining price stability, whereas in countries with little or no slack there was a need for monetary policy to prevent the re- emergence of inflation pressures.

As regards structural policies, EDRC recommendations are summarised in a set of synoptic tables in the Annex. The recommendations reflected labour market conditions and existing policy stances which differed strongly across countries and policy areas. Nevertheless, there was some tendency for recommendations for highunemployment, continental European countries to put greater weight on measures to increase labour and product market flexibility so as to enhance the economy’s ability to adjust and adapt. For countries where flexibility was seen to be higher and unemployment lower, such recommendations played a less prominent role. However, where rising income inequality, poverty and slow real income growth were important problems, recommendations emphasised the need to upgrade skills and competencies and increase the effectiveness of active labour market policies, as well as to enhance the innovative capacity of the economy.

The fact that country- specific recommendations for implementing the Jobs Strategy have now been developed and the cycle of EDRC reviews on its implementation in individual Member countries has been completed evidently does not mean that nothing more can be learnt. The process of deriving these recommendations and the EDRC reviews on their implementation in Member countries have themselves given rise to new insights. At the same time, the EDRC reviews have brought out more clearly areas where knowledge is weak. The linkages and potential conflicts between reforms to enhance economic efficiency and the policy concerns for equity and social cohesion are a prominent example. It is also clear that much remains to be understood concerning the roles for labour- market performance of entrepreneurship and technology – two of the main areas of policy recommendations in the OECD Jobs Study – on which further work by the Secretariat is under way (including with a view to deriving countryspecific policy recommendations). Continued monitoring of the effectiveness of the country- specific recommendations as they are being implemented is also likely to generate further insights, as is related work on labour market issues in other OECD Committees. Thus, the Jobs Strategy is set to evolve further in the light of experience gained and in view of developments in OECD economies.

Summing up, developments in recent years have provided evidence that high and persistent unemployment can be cut on a durable basis by adopting the right policies. The task is not an easy one, and undertaking it requires political will. However, there is no reason for countries to become resigned to high and persistent unemployment: a comprehensive approach along the lines of the Jobs Strategy holds out promise of improved labour market performance. Pursuing this approach should also help generate the necessary political momentum for reform – both because the Strategy has been seen to work, and because its comprehensive character means that both the benefits and the inevitable costs of adjustment will be widely shared. General policy recommendations for implementing the Jobs Strategy have been available for some time, but so far they have been acted upon only partially and insufficiently in most countries. Country- specific recommendations in line with the Strategy, but taking into account the specificity of each country, have now been derived. What remains is to proceed with the practical implementation of these recommendations.

The synoptic tables in this annex summarise the recommendations given by the Economic and Development Review Committee in the course of examining the implementation of the OECD Jobs Strategy in individual Member countries. The tables of necessity have a summary character. In particular, while the tables may identify a need, as perceived by the EDRC, for policy action in a given field, they provide little information on the perceived intensity of these needs. There are no summary tables for recommendations covering technology and entrepreneurship, given that country- specific recommendations have not yet been fully developed for these areas. As well, certain recommendations, relating to features or institutional set- ups that are specific to individual countries, are not covered.