Download Speech in Stockholm

Economic background and perspectives for 2004-2005:
The track towards a dynamic economy
Economist Conferences
Madrid, June 29, 2004
Alternatives for stable economic growth:
increasing productivity, greater competitiveness
and entrepreneurial innovation
Jean-Philippe Cotis
OECD Chief Economist
1
Five steps on the track towards a dynamic
economy





Assembling and interpreting the facts
Sound analyses of the facts
Drawing out credible implications for policy
Winning support for structural reform
Implementing reforms
2
Euro area economic performance is diverse, but
overall it lacks dynamism…
Average growth over the past 10 years
Real GDP
Real GDP per capita
Real GDP per
employee
Real GDP per
hour worked
United States
3.3
2.2
1.9
2.0
Selected English-speaking countries 1
3.3
2.5
1.7
1.7
Euro area
Euro less Germany
Euro 3 2
2.1
2.4
1.8
2.0
1.1
1.0
1.4
1.3
1.7
1.4
1.1
1.7
2.9
2.6
1.0
1.0
3.5
3.0
1.2
1.1
Euro smalls
3
Euro 'catch-up' countries
4
1. Australia, Canada, New Zealand and the United Kingdom.
2. France, Germany and Italy.
3. Austria, Belgium, Finland, Greece, Ireland,, Netherlands, Portugal and Spain. Excludes Austria and Portugal
for the Real GDP per hour worked.
4. Greece, Ireland, Portugal and Spain. Excludes Portugal for the Real GDP per hour worked.
Source: OECD.
3
…especially in the 3 large economies where real
per capita GDP has dropped relative to the U.S.
Trend indices, based on 2000 PPPs and 2000 prices 1
Index US GDP per capita = 100
85
Japan
Euro-3 (2)
United Kingdom
80
75
70
65
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
1. The trend is calculated using a Hodrick-Prescott filter (smoothing parameter set to 100) over a period
which includes projections through 2010.
2. Euro-3 refers to Germany, France and Italy.
Source: OECD Annual National Accounts.
2000
2003
4
Explaining the differences in GDP per capita: the
OECD diagnosis

Weak labour utilisation
–
–
–
–

Hours worked per employee low
Less productive workers are priced out of jobs
Weak employment rates among older workers
Relatively low female labour force participation in some euro area
countries
Low productivity
– Regulatory frameworks limit competition, especially in the nontraded sector
– ICT diffusion disappoints in a number of countries
5
Disincentives embedded in old age pension
systems discourage older persons from working
Implicit tax rates on continued work over next 5 years in current old-age pension systems1
At age 60
In per cent
100
90
80
70
60
50
40
30
20
10
0
l
a
y
nd and
tes dom uga land ada
tri
an
a
a
l
l
s
t
n
t
e
a
e
m
u
g
r
a
S
r
r
I
Ic
A
C
in
d
Ze
Po
Ge
K
w
ite
d
e
n
N
U
ite
Un
ly
Ita
s
e
g
n
d
n
m
in
ea
ay
nd
lia
ur
nc
nd
CD lan
de apa
or lgiu
pa
o
a
a
e
rw erla stra
E
l
r
n
b
S
J
K
r
o
F
O
Fi
Sw
N
Be
itz
em ethe
Au
x
w
u
S
N
L
1. Single worker with average earnings.
6
Disincentives to older workers are also high in
social transfer programmes…
Implicit tax rates2 on continued work over next 5 years in current social transfer programmes 1
In per cent
At age 55
100
90
80
70
60
50
40
30
20
10
0
la
ea
w
Ne
Z
nd
Ita
ly
l
s
a
e
s
a
y
a
y
d
g
n
d
d
a
d
n
n
re tate
om ECD lan
ur
tri gium pai tuga and
nc
an
de rwa trali rlan
an apa
ad
an
o
l
s
l
d
o
a
e
n
l
e
e
r
m
n
g
b
J
S
r
K
S
s
e
r
F
O
Ir
er
Ic
Au Bel
Ca
in
Fi
Sw
No Au
Po
itz
em
th
Ge
K
ted
x
e
i
w
d
S
N
Lu
Un
ite
n
U
1. Single worker with average earnings.
2. The implicit tax rate on continued work refers to an "early retirement route". The latter is modelled as the unemployment benefits / assistance pathway into
retirement with the exception of Ireland, where the modelling refers to the pre-retirement allowance, and Luxembourg, where disability benefits were
considered given their widespread incidence among pensioners. In those countries where it is considered that no early retirement scheme can be widely used
to withdraw from the labour market before the minimum pensionable age (Australia, Canada, Iceland, Italy, Japan, Korea, New Zealand, Norway, Sweden,
Switzerland and United States) the retirement scheme considered in the chart is simply the "regular" old-age pension system. Similarly, at those ages when
people are entitled to an old-age pension (e.g in France at 60), the retirement scheme considered in the chart is the "regular" old-age pension system rather
than an early retirement scheme.
7
Ic
el
an
N d
or
w
Sw ay
Sw ed
it en
N zerl
e w an
Ze d
al
an
d
U
J
a
ni
te pan
d
St
at
es
K
or
e
U
ni Den a
te
m
d
K ark
in
gd
o
M m
ex
i
Po c o
rtu
g
Ca al
n
A ada
us
tra
li
Ire a
la
n
Fi d
N nla
Cz ethe nd
ec rla
h
n
Re ds
pu
bl
ic
Sp
ai
n
Fr
an
c
G e
re
G ece
er
m
an
Tu y
rk
ey
Ita
ly
P
Lu ol
xe and
m
bo
u
Be rg
lg
iu
Sl
m
H
ov un
ak
ga
Re ry
pu
bl
ic
… and bears on the old age employment rate
Employment of men and women age 55-64 as a percentage of the population age 55-64, 2002
% of population age 55-64
100
90
80
70
60
50
40
30
20
10
0
Source: OECD.
8
Removing implicit taxes on older workers would
raise labour force participation…
Potential impact of pension reforms on labour force participation of older workers (projected labour force participation rates of the 55-64 age group in
2025 under different scenarios)
90
85
80
Projection assuming a total suppression of current policy distorsions
Baseline projection taking into account the potential impact of recent reforms
75
70
65
60
55
50
45
40
35
Source: OECD.
Ita
ly
G
er
m
an
y
U
Ca
ni
na
te
da
d
K
in
gd
om
Sp
ai
n
Po
rtu
U
ga
ni
l
te
d
S
t
N
ew ates
Ze
al
an
d
Sw
Sw eden
itz
er
la
nd
Ire
la
nd
Ja
pa
n
N
or
w
ay
Ic
el
an
d
A
us
tri
Be a
l
Lu giu
m
xe
m
bo
ur
g
Fr
an
ce
A
us
tra
lia
K
or
N
e
et
he a
rla
nd
s
Fi
nl
an
d
30
9
… as would lowering work obstacles to females
Simulations of policy measures to increase female participation
1
22
20
18
16
14
12
10
8
6
4
2
1. The baseline participation rates are the projected female participation rates for 2025 based on cohort effects and are taken from Burniaux et al. (2003);
OECD refers to the unweighted OECD average.
Source: OECD estimates.
10
Japan
Spain
Germany
Korea
United States
Netherlands
Ireland
France
Portugal
New Zealand
Belgium
OECD
United Kingdom
Czech Republic
Switzerland
Australia
Austria
Canada
Mexico
Denmark
Norway
Turkey
Sweden
Finland
0
Euro area labour productivity has converged
closer to US levels, but not output per capita…
Index
225
USA: real business GDP per capita, index 1970=100
200
USA: real business GDP per hours worked, index 1970=100
Euro-3: real business GDP per capita (1)
175
Euro-3 : real business GDP per hours worked (1)
150
125
100
75
20
03
20
00
19
97
19
94
19
91
19
88
19
85
19
82
19
79
19
76
19
73
19
70
50
1. France, Germany and Italy. Data are indexed by the difference between US real business GDP per capita and the Euro-3 real business per capita in 1970.
Source: OECD.
11
…but the interpretation of labour productivity
requires care
Percentage gap with respect to the United States level, 2002, 1995 PPP
Labour resource
utilisation gap with US 1
10
Correlation coefficient = -0.9
Japan
0
Canada
Australia
-10
United Kingdom
-20
European Union
Germany
France
-30
Italy
-40
-30
-25
-20
-15
-10
-5
0
5
10
Labour productivity gap with US 2
1. Labour resource utilisation gap is measured as trend total number of hours worked divided by population.
2. Labour productivity gap is measured as trend GDP per hour worked.
Source: OECD.
12
Barriers to entrepreneurship in euro area countries are
high
1
6
Barriers to competition
5
Regulatory and administrative opacity
Administrative burdens on startups
4
3
2
1
1. The scale of indicators is 0-6, from least to most restrictive.
Source: Nicoletti, et all (1999), "Summary indicators of product market regulation with an extension to employment protection legislation,"
OECD Economic Working Papers no. 226.
13
Italy
France
Belgium
Japan
Switzerland
Germany
Finland
Sweden
Spain
Greece
Austria
Portugal
Netherlands
Norway
Denmark
United States
New Zealand
Ireland
Australia
Canada
United Kingdom
0
The policy agenda is broad







Good macroeconomic policies are essential
Strengthen incentives to work
Stemming the flow into early retirement
Increase labour force skills
Nurturing an entrepreneurial climate
Enhancing the creation and diffusion of technological
know-how
Improving the functioning of financial markets
14
Implementing reforms: what role for the OECD?





Progress is being made, but it is slow and uneven
The importance of empirical analyses
Identifying priorities
Strategies for winning broad support for change
A ‘piecemeal’ or ‘package’ approach to reform?
15
SPARES
16
Real business sector GDP per employee and per
hour worked in the large euro area countries
Euro-3 1
Index 1970=100
240
Real business GDP per employee in the business
sector
Real business GDP per hour worked
220
200
180
160
140
120
100
80
1970
1973
1976
1979
1. France, Germany and Italy.
1982
1985
1988
1991
1994
1997
2000
2003
17
Euro area labour productivity has converged
closer to US levels, but not output per capita…
Index
225
USA - real business GDP per capita, 1970=100
200
USA - real business GDP per hours worked, 1970=100
Euro area: real business GDP per capita (1)
175
Euro area : real business GDP per hours worked (1)
150
125
100
75
1. Data are indexed by the difference between US real business GDP per capita and the euro area real business per capita in 1970.
Source: OECD.
18
20
03
20
00
19
97
19
94
19
91
19
88
19
85
19
82
19
79
19
76
19
73
19
70
50
… and bears on the old age employment rate
Employment rates by age and gender, 2002
% of working age population
90
Old 55-64
80
Young 15-24
Women 25-54
70
Men 25-54
60
50
40
30
20
10
A
PO
L
TU
R
IT
L
X
K
O
R
FR
A
M
EX
BE
L
ES
P
SV
K
G
RC
H
U
N
LU
IR
E
N
O
R
D
N
K
SW
E
N
LD
G
BR
N
ZL
U
SA
CA
N
A
U
S
JP
N
PR
T
FI
N
CZ
E
D
EU
CH
IS
L
0
Source: OECD.
19