Download Wages Motivation and recruitment

Split: March 2006
Lecture 1
The Lisbon Strategy: a
critical assessment
Nick Adnett
LECTURE OUTLINE
Key Trends in European
Labour Markets
 The Luxembourg Process &
Lisbon Strategy
 The Changing Economic &
Demographic Environment

– impact upon economic and
social objectives of EU

Modernising Social Europe
– some key principles
European Labour
Markets





Employment growth has been
slow & participation rates low
Decline in the participation
rate of elderly males + rise in
that of prime-age females
The labour force is ageing
The intensity of work is
increasing, yet work is spread
more thinly
Deindustrialization is
continuing
European Labour
Markets (contd.)






Gender gaps are still large
– pay gap, occupational
crowding
 Demand for unskilled workers
Labour market inequality is
increasing
Unemployment is still high and
unevenly distributed
Collective bargaining is
becoming more fragmented
EU Labour markets are
relatively highly regulated.
ISSUE 1:INCREASING
LABOUR MARKET
INEQUALITY

increasing employment
inequality
– growth of flexible working
• part-time, temporary
– high unemployment
• unemployment incidence highly
skewed

– growth of early retirement
increasing wage inequality
– relative and absolute decline in
lowest wage groups
– education premiums risen
Increasing Wage
Inequality

Causation
• increased supply of unskilled
workers or contraction in
demand?
• increased supply (demographic,
rising female share, immigrants)
unlikely to dominate since
trends appear common across
industrialized economies and
employment share of unskilled
/less qualified workers fallen
• investigations concentrated upon
sources of reductions in demand
Causes of Reduced Demand
for Low-skilled workers
Possible factors:
 Technological change
– New technology is educationbiased

Globalization
– Outsourcing of low-skilled
jobs out of OECD

Institutional factors
– decline of unions
– deindustrialization
– decline in average firm size
Globalization

Increased world trade + GATTinspired reductions in tariffbarriers caused export of lowskilled jobs to NIC’s
– outsourcing
– fall in the relative price of less skillintensive
– BUT:
• mfg. imports from low-wage
economies have small share of
developed economies markets
• skill-intensity of production
risen across all sectors in
developed economies
ISSUE 2:
UNEMPLOYMENT
PERSISTENCE


Uneven distribution of
unemployment experience
Increases in unemployment
difficult to reverse
– hysteresis

Negative duration dependence
– problem of the long-term
unemployed
Policy Response:
 activation and promotion of
‘churning’
ISSUE 3: SLOW
EMPLOYMENT
GROWTH
Rise in European
unemployment in 70s & 80s
due to longer spells
 Flows out of unemployment
relatively low in Europe
Europe has a ‘hiring’ problem
 low proportion of trade in
fast growing world markets
 inflexible labour markets?

The Luxembourg
Process

Amsterdam Treaty
– required a ‘co-ordinated strategy
for employment’

Luxembourg Summit (1997)
adopted a common European
Employment Strategy (EES):
– four pillars: improving employability,
developing entrepreneurship, encouraging
adaptability and strengthening equal
opportunities
– four horizontal objectives: raising overall
employment rates; extending lifelong
learning;raising quality of employment &
strengthening social partner involvement.
– Member States transform the 19 guidelines
into annual National Action Plans (NAPs).
EU EMPLOYMENT
STRATEGY: Key Themes

activation of passive policies
– targeting of LTU/social
exclusion
lower tax burden on firms
 human capital investment
 active ageing policies
 processes: benchmarking,
target-setting, monitoring,
evaluation and peer review.
 Emphasis upon ‘soft’
convergence

THE RECENT EVOLUTION
OF THE EMPLOYMENT
STRATEGY

Employment targets, led to:
–
–
–
–

‘Making Work Pay’ reforms
gender pay gaps
family friendly work practices
active ageing policies
‘New Economy’ taken seriously
– lifelong learning & skill gaps



 Co-ordination of economic,
employment and social policies
Quality of employment
Social partner involvement
The LISBON
STRATEGY
Objective:
By 2010, the EU should be
the most dynamic,
competitive, sustainable,
knowledge-based economy,
enjoying full employment
and strengthened economic
and social cohesion.
LISBON STRATEGY
Targets set:




Employment rate of 67%(70%) overall
and 57% (60%) for women by 2005
(2010)
Increasing average EU employment
rate for older workers (55-64) to 50%
by 2010
Improving basic skills, particularly IT
and digital, to make EU the most
competitive and dynamic knowledgebased economy
Modernise EU labour markets and
promote labour mobility
MODERNISING THE
EUROPEAN SOCIAL
MODEL
A CHANGED ECONOMIC
ENVIRONMENT?

New production technologies
– holistic firms

Knowledge-driven economy
– need for flexible employees

EMU
–  labour market flexibility desired

Globalisation
–  impact of domestic regulations
on national employment

Demographics
– ↑ dependency rate
Some Guidelines for
Reform


Co-ordinate employment, social
and macroeconomic policies
Respect national differences:
• lack of convergence of institutions,
workplace norms and degree of social
solidarity

Design complementary policy
packages
• dismantle harmful constraints but
replace with efficient policies which
maintain distributional objectives.

Choose objectives linked to social
welfare
• employment rates?
Freeman, R. (2004), Are European
Labour Markets as Awful as All That?
LSE, Centre for Economic Performance
Discussion Paper No. 644.
Prepared Questions:
1.
Interpret the data in Table 1 and identify the
reasons for the much higher US employment
rate. What are main conclusions from
comparisons of real wages and wage
dispersion in the EU and US?
2.
What are the main institutional differences
between the EU and US? To what extent are
these institutional differences a cause of the
different overall employment rates?
3.
What does Freeman argue are the main
areas where EU labour market institutions
could be improved?