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Implementation of Commission communication strategy

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									Methodology to assess the progress in Lisbon strategy
Smilovice, 5th December 2007

Unit E-1:Coordination of structural reforms and their macroeconomic implications DG ECFIN, European Commission

Alexandr Hobza

Outline of presentation
1. Lisbon strategy: structural reform process in Europe 2. Methodology to assess progress with Lisbon Strategy 3. Tracking reforms 4. Multi-step methodological approach to identifying growth-enhancing policies 5. Modelling effects of reforms

Lisbon strategy
Economic perspective


Need to deal with economic challenges



 

Low growth potential and adjustment capacity (euro area) Globalisation Ageing Climate change



Response
 

Macroecomic policies geared towards stability and growth Comprehensive coordinated process of structural reforms

Lisbon strategy
Historical perspective
  

Continuation of pre-Lisbon coordination processes Politically driven process – European Council meetings and headline targets Mid-term review in 2005 and re-launch of the Strategy

Lisbon strategy
Procedural perspective
   

Rationale for coordination Coordination of economic policies in EMU Lisbon: structured coordination based on soft tools Integrated Strategy for Growth and Jobs– new governance arrangements


National ownership as a solution




Political economy elements (wider participation, more focus, integration of policies) The national key challenges at the core of the EU strategic approach

Spillovers of structural policies
Overall longrun effect on GDP in EU Average spillovers (as share of overall effect) 50%

Policy area

Model

Simulation assumptions

WorldScan

R&D
QUEST III

Increasing R&D intensity from 1.86% to 2.7% in 2010 (partially paid through a R&D subsidy financed by lump-sum transfers from households). Increasing R&D intensity from 1.86% to 2.54% in 10 years through a R&D subsidy (financed from consumption tax). Achieving skill targets set by 2003 European Council. Input into simulation (effects on labour efficiency from these policies and demographic developments) were modelled in a special model. Reduction in administrative burden by 25% modelled as a labour efficiency shock. Reduction in administrative burden by 25% modelled as a shock to mark-up of prices over unit costs. Labour supply shocks from achieving the 70% target for employment rate.

3.3%

4.8%*

20%

Skills

WorldScan

2.1%*

4%

Administrative burden Employment targets

WorldScan NiGEM WorldScan

1.9% 1.1% 7%

5% 10% 4%

Complementarities between reforms
Trhy produktů Znalostní ekonomika Více konkurence => více investic do VaV (křivka ve tvaru „U“) Trh práce Nižší renty snižují odpor vůči reformám; nižší regulace na trzích produktů zvyšuje efektivitu reforem na trzích práce Vyšší průměrná úroveň dovedností pracovníků => menší potřeba ochrany přes instrumenty na trzích práce; více inovativních firem => větší poptávka po práci Finanční trhy Větší poptávka po úvěrech => větší příležitosti pro finanční sektor; Makro Vyšší růst a nižší inflační tlaky => větší prostor pro akomodativní makroekonomické politiky;

Trhy produktů

***

Znalostní ekonomika

Zvyšování lidského kapitálu => větší nabídka kvalifikovaných pracovníků a větší flexibilita při realokaci zdrojů do nových aktivit Lehčí realokace pracovního vstupu => reformy trhu produktů jsou efektivnější

***

Větší poptávka po úvěrech a větší investiční příležitosti

Vyšší růstový potenciál usnadňující formulaci makroekonomických politik

Trh práce

Nižší náklady práce a větší flexibilita => lepší prostředí pro začínající inovativní firmy

***

Větší objem úspor k dispozici; menší pravděpodobnost osobních bankrotů

Větší flexibilita při stanovování mezd => větší odolnost vůči šokům a menší tlak na monetární a fiskální politiku Menší náklady na financování dluhu

Finanční trhy

Nižší cena kapitálu => lepší alokace zdrojů

Dostupnější kapitál pro high-tech firmy

Lepší pojištění přes finanční trhy => menší potřeba pro pojištění na trzích práce Makroekonomická stabilita => snižují se přizpůsobovací náklady a snižuje se odpor vůči reformám; zdravé veřejné finance => větší prostor pro kompenzaci jedinců tratících na reformách

***

Makro

Makroekonomická stabilita => lepší podmínky pro reformy; méně „crowding out“ soukromých investic

Větší kvalita veřejných financí => realokace prostředků na výdaje na VaV a vzdělávání

Makroekonomická stabilita a růst => nižší pravděpodobnost finančních krizí

***

Economic policy coordination in EMU
Monetary policy stance

Monetary policy ECB Article 105

Exchange rate Council (+ECB/Commission) Article 111

Integrated Guidelines Package Commission, Council, EP, European Council Broad Economic Policy Guidelines Article 99 Employment Guidelines Article 128

Macroeconomic Dialogue
Cologne Resolution

Stability and Growth Pact Stability/Convergence Programmes
Article 104, Amsterdam Resolution and Council Regulations

Community Lisbon Programme National Reform Programmes

Macroeconomic conditions

Budgetary stance

Smoothly operating markets, potential growth

Types of policy-making in the EU
POLICIES FORM OF COORDINATION Monetary policy SINGLE POLICY Exchange rate Single policy (euro area) Single policy (euro area) MODE OF COORDINATION Single institution Coordination in the Council ACTORS INVOLVED ECB Council ECB Eurogroup Commission Member States Commission Council Member States Commission Council Member States Commission Council Eurogroup Excessive Deficit Procedure Stability and Growth Pact Broad Economic Policy Guidelines Coordination in the Council Member States Council Commission PROCEDURES

Competition policy

Single policy

Implementation by the Commission Coordination in the Council Coordination in the Council Joint fora

External trade (customs union) Budgetary policy HARD COORDINATION (balances)

Single Policy

- Treaty rules - Commonly agreed rules and objectives - Information exchange - Peer review - Rules - Joint decisions - Council directives - Peer review

Internal Market (structural reforms)

Types of policy-making in the EU
POLICIES FORM OF COORDINATION Policy-mix - Dialogue - Information exchange MODE OF COORDINATION Joint fora ACTORS INVOLVED ECB Commission Council Eurogroup Social partners Member States Commission Council Eurogroup Member States Commission Council Social partners Macroeconomic Dialogue PROCEDURES

Budgetary policy (quality and sustainability of public finances) SOFT COORDINATION Labour market policies (structural reforms)

- Commonly agreed objectives - Guidelines - Peer review - Information exchange - Discussion of best practices - Guidelines - Peer review - Information exchange - Discussion of best practices - Guidelines - Peer review

Coordination in the Council

Broad Economic Policy Guidelines Stability and Growth Pact Employment Guidelines Broad Economic Policy Guidelines

Coordination in the Council Joint fora

Product and capital market policies (structural reforms)

Coordination in the Council

Member States Commission Council

Broad Economic Policy Guidelines

Lisbon strategy: governance structure








Overall policy objectives set by Heads of State of Government (Spring European Council) + Integrated Guidelines as a blueprint for policy design Some common targets, e.g. employment rates of 70% by 2010, to raise spending on R&D to 3% of GDP, reduce administrative burden in complying with regulations by 25% between 2006 and 2010 Member States (not the European Commission) define their key growth challenges and reform commitments Reform priorities fixed for a three-year cycle, BUT annual reporting and evaluation exercise which leads to country specific political recommendations

Lisbon strategy: A political process supported by economic analysis
•

Based on the premise an external constraint and peer pressure can help overcome reform bottlenecks • short-term (concentrated) costs versus uncertain long-term (dispersed benefits • rent-seeking interest groups can capture policy makers Also recognises that there are economic spillovers (trade, internal market) and political economy spillovers (institutional learning, demonstration effects, peer pressure) in coordinating at EU level
Combination of evidence-based analysis supported by a political process can generate results Can take years to “frame” a consensus on the nature/scale of policy challenge, and on the policy reforms needed to tackle them

•

•

•

Work on the Lisbon evaluation methodology


A three-pronged approach I: Tracking structural reforms

II: Quantifying their impact on growth and jobs
III: Modelling


Practical arrangements

ECFIN working together with other lead DGs, i.e. SG, ENTR and EMPL
Developing analysis working with new Lisbon Methodology (LIME) Working Group attached to the EPC

Method I – tracking structural reforms



Developing institutional databases on reforms

- LABREF: an operational database of enacted labour market reforms
- MICREF : a database of microeconomic reforms, currently being developed


Reporting tables/grids attached to NRPs - working with LIME group to streamline format and content

LABREF database



database on enacted labour market reforms in 9 areas covering labour taxation, unemployment and social benefits, ALMPs, EPL, disability and early retirement schemes, pension systems, wage bargaining, working time organisation, immigration and mobility.



completed for 2000-2006 period (except BU and RO)

LABREF database

Measures contained in LABREF by reform area: 2000-2006 (% on total reforms in each geographical area)
0.30 New Members States 0.25 euro-zone 12 EU15-excl euro zone

0.20

0.15

0.10

0.05

0.00 Labour Taxation Benef its ALMPs EPL Pensions Wage Bargaining Working Time Immigration Mobility

MICREF database



database of microeconomic reforms developed in cooperation between DGs ECFIN/ENTR and EPC with assistance from JRC



includes policies such as market integration, competition policy, sector specific regulation, start-up conditions, business environment, R&D and innovation, education)
Further steps



- back-dating to 2004/5 by Spring 2008
- development of Internet interface underway

Reporting tables

<------------------------------------------------ ------ ESSENTIAL --------------------------------------------> <---------------- DESIRABLE ------------->

Description module

Classification module

Impact and follow-up module

Follow Functional Key REC. and Euro Direct Description Rationale of Timeline Timeline Eurostat Impact Input Output Comment Integrated Classificati challeng Points to area Comment up Status budget (voluntary) Guidelines of measure measure start end (voluntary) procedindicator variable indicator indicator on es watch REC cost ures
Measure 1

Method II – analysing the impact of reforms on growth and jobs


Starting point is a focus on growth drivers through decomposition of GDP
- quantify the sources of per capita GDP gaps in the EU - quantify the determinants of growth over 2000-2005 using a growth accounting approach decomposed into 12 components (especially detailed on the labour market side)



The purpose is
- to provide an analytical benchmark for analysing the impact of structural reforms on growth and employment - verify that policies are focussing on the most important growth drivers

Growth determinants and policy measures
HDP na hlavu Využití pracovní síly (odpracované hodiny na hlavu) Produktivita práce (HDP na odpracovanou hodinu)

Odpracované hodiny na pracovníka

Míra zaměstnanosti

Kapitálová intenzita
(kapitál na odpracovanou hodinu)

Souhrnná produktivita faktorů

Strukturální míra nezaměstnanosti

Míra participace na trhu práce

Kvalita pracovní síly (složení dovedností)

Kvalita kapitálu (složení a kvalita aktiv)

Čistý technologický pokrok

Reformy na trzích práce

Integrace finančních trhů

Opatření pro znalostní ekonomiku

Reformy na trzích zboží a služeb

Method II – a multistep approach


Step 1: Identifying the components of GDP where MSs are underperforming (in terms of level and growth) relative to a given benchmark through GDP accounting. Step 2: Identifying the conceptual links between policy interventions, a list of indicators and the underperforming GDP components. Step 3: Using performance and policy indicators to identify the most problematic policy areas/issues, which are likely to be responsible for the income gaps/weak growth components.







Step 4: Bringing together the results of step 1 (GDP accounting) and step 3 (indicator-based assessment of policy area performance) and supplementing them with country-specific expertise and data
Step 5: Present the result in a policy context (link with NRP and Key Challenges



Step 1: Growth accounting
Standard disaggregation DG ECFIN refined disaggregation Native population Working age population Net migration Working age population share in total population Youth Participation Labour market Participation Male prime-age participation Female prime-age participation Older-worker participation Unemployment rate Average hours worked per person Capital deepening (capital per hour worked) •Total factor productivity Unemployment rate Average hours worked per worker Labour quality Capital deepening (capital per low-skilled labour hour worked) Total factor productivity

Degree of exogeneity or endogeneity Exogenous Partially endogenous Exogenous Largely endogenous Partially endogenous Partially endogenous Largely endogenous Partially endogenous Partially endogenous Largely endogenous Partially endogenous

Endogenous

Step 1 – Growth accounting
Y Y H L       A  QL POP H  L POP  
Y H L α POP SWP PART ur QL K TFP

 K     H L

1

   H  SWP  PART  (1  ur )   

total GDP the annual hours worked per person employed total employment, which the product of POP, PART and (1-ur) the share of labour in total value added, which is set equal to 65% in all countries total population the working age population share (15-64) in total population total labour force participation rate the overall unemployment rate indicator of labour quality the stock of capital total factor productivity as a residual

Step 1 – Growth accounting
To capture the change in average quality of labour, we compute the average relative productivity of a person employed compared to those with low educational attainment:

Q

t



1 EL t  EM
t

 E H t . S


Low , Medium, High

 W  ES t . S  WL 

2002 2002

 .  

Where Es and Ws are respectively employment and hourly wage (without overtime) for each educational attainment (ISCED-3).

Step 1 – Growth accounting

Y  A( L  H  QL ) K 1  A( L  H  QL ) ( L  H  QL ) 1 K 1

  K  A( L  H  QL )  L  H Q   L  

1

gY  g A  (1   )( g K  g L  g H  gQL )  gQL  g H  g POP M  g m 

mt 1 ur  g SWP  g PART  gur  t 1 1  mt 1 1  urt 1

g POP-M m

denotes a rate of growth native population net migration rate

Explaining the gaps in GDP per capita across countries
Percentage gap with respect to EU-5 1) GDP per capita Effect of labour resource utilisation (Hours worked per capita) Effect of labour productivity (GDP per hour worked) Change in gap 2000 - 2005

Luxembourg Ireland Denmark Netherlands Austria Belgium United Kingdom Sweden Finland Germany France EU-15 Euro area Italy EU-25 Spain Cyprus Greece Slovenia Czech Republic Portugal Malta Hungary Estonia EU-10 Slovak Republic Lithuania Poland Latvia -80 -60 -40 -20 0 20 40 60 80 100 -80 -60 -40 -20 0 20 40 60 80 100 -80 -60 -40 -20 0 20 40 60 80 100 -10 -5 0 5 10 15 20

1) Average of the best 5 performing EU countries (Luxembourg, Ireland, Denmark, Netherlands and Austria)

Czech Republic: Growth accounting
Gap with EU15 in level in 2005
GDP per capita Labour Productivity Labour Resource Utilisation Capital Deepening Total Factor Productivity Labour Quality (Education) Share of Working age Population 55-64 Participation Unemployment Rate Average Hours Worked Native Population Net Migration Youth Participation 25-54 Male Participation 25-54 Female Participation -60 -40 -20 0 20 40

Growth decomposition 2000-2005
GDP per capita Labour Productivity Labour Resource Utilisation Capital Deepening Total Factor Productivity Labour Quality (Education) Share of Working age Population 55-64 Participation Unemployment Rate Average Hours Worked Native Population Net Migration Youth Participation 25-54 Male Participation 25-54 Female Participation -2 -1 0 1 2 3 4 5

Step 1 – Growth accounting


New features of the growth accounting - very detailed decomposition - accounting for the quality of labour - contribution of migration



Caveats - descriptive approach, does not inform about causality - results affected by assumptions of technical nature – e.g. Cobb-Douglas PF, no economies of scale, calibration of labour share (though widely accepted) - growth and its components can be affected by the business cycle - developments in each component might be difficult to interpret in practice

Step 2 – Making the link with policies


Need to link growth accounting with policy interventions and performance on indicators


need to draw on a wide body of economic research



The structure of the fiches
 






Definition and scope of the policy area Impact on growth components (theoretical mechanism and transmission channels); direct and indirect Evidence and estimated elasticities in recent literature Possible spillovers and complementarities with other policy areas Non-exhaustive list of relevant indicators

Step 2 – Making the link with policies
Labour market
Product market Active labour market policies (training, job-search assistance, well-designed and targeted programmes Making work-pay: incentive to work through the interplay of tax and benefit system Reforming labour taxation to stimulate labour demand Relaxing job protection while combating labour market segmentation/dualisation Working time organisation Openness to trade and investment Barriers to entrepreneurship and business environment Competition-friendly policy framework Efficient financial markets and access to finance R&D, innovation policies and ICT Education and life long learning

Innovation and knowledge
Macroeconomy Long-term sustainability of public finances and welfare policies Stability oriented macroeconomic policies

Specific labour supply measures for women
Specific labour supply measures for older-workers Improving wage bargaining and wagesetting policies Immigration and integration policies Labour mobility (geographical and sectoral)

Example: LS of older workers
Policy area GDP components Older-worker participation Policy and performance indicators

Specific labour supply measures for olderworkers)

Policy indicators Implicit tax on continued work (Net change in pension wealth if retiring at 65 instead of 62 -2004 (-) Coverage of early retirement 2004 (-) Life-long learning: Participation of the population aged 55-64 in education and training 2000-2006 (+) Performance indicators Average exit age from the labour force 2001-2005 (+) Employment rate of older workers aged 55 to 64 - Women (%) 1992-2006 (+)

Employment rate of older workers aged 55 to 64 - Men (%) 1992-2006 (+)

Step 3: Scoring system

Score = (Indicator-EU15 average)/Standard deviation *10
• trimming the score (3 stdev.) so as to avoid giving too much weight to outliers

• not rounding the final value in the maquette but presenting it without decimal
• reporting the EU15 average and the stdev. as well as the distance to alternative benchmarks (EU27, five best values, EU5, the Lisbon target)

Step 3: Scoring system
Under normal distribution EU15

Average+one stdev. E(X)+ (X)

++ =2 16%
+ 0 0 =1

E(X)+0.4 (X)
EU15 Weighed average E(X)

=0

E(X)- 0.4 (X) E(X) - (X)


%

19%
31

=-1

19%

- - =-2 16

Table 1: Application of the new scoring system to step 1 (level and change)f
GDP accounting level assessment vis-à-vis EU15
GDP per capita Labour Labour productivity utilisation Capital Deepening Total Factor Initial education 0.00 Share of Working age Population 55-64 Participation Unemploy ment Rate Average Hours Worked Native Population (fertility rate) Net (share of foreign pop) Youth 25-54 Male Participation 25-54 Migration Participation Productivity (Labour quality)

Female

Participati

Score BE BG CZ DK DE EE IE GR ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK

8 -30 -28 13 1 -30 23 -21 -8 0 -5 -19 -30 -30 30 -30 -30 13 11 -30 -30 -30 -22 -30

21 -30 -30 3 5 -30 14 -22 -9 12 -7 -24 -30 -30 30 -30 -22 13 -2 -30 -30 -30 -24 -30

-16 28 30 12 -6 28 7 8 3 -15 5 16 18 13 30 7 -10 -3 18 2 13 15 11 -7

2 -30 -30 -15 8 -30 4 3 -10 10 2 -30 -30 -30 -3 -30 -29 8 1 -30 -30 -30 -30 -30

28 -30 -21 13 -5 -25 18 -16 1 14 1 -1 -25 -19 30 -22 -2 8 -8 -24 -15 -30 -13 -21

-12 -6 -1 -5 12 3 -10 -10 -8 -10 -12 -9 -8 -7 1 8 -14 0 10 3 -7 2 3 4

-10 21 30 -4 4 13 15 8 19 -14 -3 17 21 12 4 19 29 8 14 30 6 27 30 30

-14 -9 0 16 5 12 6 -4 -1 -7 -15 5 7 6 -15 -13 -15 1 -14 -17 7 -7 -15 -12

-5 -4 8 8 -3 -3 9 -7 -3 -6 0 8 -4 -2 30 1 2 9 8 -28 0 -2 3 -30

-6 30 22 -3 -12 28 2 30 4 -4 14 7 20 19 -4 27 9 -15 3 26 6 30 8 9

2 -30 -6 8 -5 -30 10 -30 -5 12 -6 -3 -6 -7 5 -6 6 6 -3 -30 -3 -5 -7 -7

9 -27 -20 -7 11 30 -1 2 6 0 -10 30 30 -24 30 -22 -15 -9 14 -20 -18 -28 -19 -27

-12 -18 -12 18 2 -12 5 -13 0 -8 -13 -5 -9 -20 -17 -19 6 21 10 -11 -4 -15 -7 -10

-3 -30 20 -7 10 -29 -4 18 -1 9 -11 25 -27 -21 26 -30 6 11 3 -30 -1 -30 -12 11

2 3 10 15 6 12 -9 -11 -10 8 -19 2 11 17 -5 -5 -30 6 7 2 10 -7 18 11

Step 3: Scoring system

GDP components Labour utilisation Share of working age population Native population Net migration Unemployment rate Average hours worked Youth participation 25-54 male participation 25-54 female participation 55-64 participation Labour productivity Capital deepening Total factor productivity Labour quality (educational attainment) GDP per capita

Old scoring New scoring 2 30 2 30 -1 -6 -2 -20 1 8 2 22 -2 -12 2 20 1 10 0 0 -2 -30 -2 -30 -2 -21 0 -1 -2 -28

Improvements to the methodology
  








Robustness checks Correlations between indicators Taking account of cyclicality Extending growth accounting to include sectoral decomposition or environtal dimension Aggregate score based on a narrower set of indicators Extending growth accounting to include forecast Presentational issues

Next steps
•

Questionnaire to MSs to seek clarification on:
• • • •

new scoring scheme cyclical adjustments robustness checks presentation of results etc.

•

•

« Final » proposal to be presented in January 2008 Methodology to be applied by May 2008

Mechanical application: overall results
Policy areas -- Aggregate scores for CZ Labour market Active labour market policies Making work-pay: incentive to work through the interplay of tax and benefit system Reforming labour taxation to stimulate labour demand Relaxing job protection while combating labour market segmentation/dualisation Working time organisation Specific labour supply measures for women Specific labour supply measures for older-workers) Improving wage bargaining and wage-setting policies Immigration and integration policies Labour mobility (geographical and sectoral) Product and capital market regulations Openness to trade and investment Barriers to entrepreneurship and business environment Competition-friendly policy framework Efficient financial markets and access to finance Innovation and knowledge R&D, innovation policies and ICT Education and life long learning Macroeconomy Long-term sustainability of public finances and welfare policies Stability oriented macroeconomic policies Level Change

0 0 -1 0 1 -1 0 -1 1 0 0 -1 0 0 -1 0 0 0

0 1 -1 -1 0 0 1 1 2 0 1 -1 -1 0 1 0 0 0

Example: Making work pay

Making work-pay: incentive to work through the interplay of tax and benefit system
Unemployment benefit duration, months (Danish study-median of the min-max range) Average unemployment benefit duration (years) (OECD) Job availability requirement index (Danish study) Unemployment trap (low wage-earner): Marginal effective tax rate for an unemployed person (67% AW, single person) Unemployment trap (average wage-earner): Marginal effective tax rate for an unemployed person (100% AW, single person) Inactivity trap (low wage-earner): Marginal effective tax rate when moving from social assistance to work (67% AW, single person) Inactivity trap (average wage-earner): Marginal effective tax rate when moving from social assistance to work (100% AW, single person) Net Replacement Rates for unemployed persons (67% AW, single person) Net Initial Replacement Rates for unemployed persons (100% AW, single person) Average unemployment benefit replacement rate (%) (OECD) Unemployment rate - Pre-primary, primary and lower secondary education - levels 0-2 (ISCED 1997) (%) Employment rate - Pre-primary, primary and lower secondary education - levels 0-2 (ISCED 1997) (LFS) (%) Long-term unemployment rate Aggregate score on level Number of individual indicators with negative performance

Level 2 2 2 1 0 0 2 1 -2 -2 -1 0 3

Growth

2 2 2 2 1 1 -2 -2 1 1 2

Example: Female and older worker LS
Specific labour supply measures for women
Childcare (0-2 years) for less than 30 hours Childcare (0-2 years) for 30 hours and more Childcare (3 years to compulsory school age) for less than 30 hours Childcare (3 years to compulsory school age) for 30 hours and more Childcare (compulsory school age up to 12 years) for less than 30 hours Childcare (compulsory school age up to 12 years) for 30 hours and more Number of months of maternity/paternity/parental leave with benefits replacing at least 2/3 of salary Inactivity trap for the second member of a couple (half-time at 67% APW) Low-wage trap for second-earner income (first earner: 67% APW; second earner: 33% to 67%) Life-long learning. For women Female employment rate (%) Gender pay gap in unadjusted form gender segregation in occupations Gender segregation in sectors Unemployment gender gap Employment impact of parenthood Employment gender gap in full-time equivalent Female part-time workers in % of total female employment Female employees in part-time who could not find stardard employment as % of total employees Aggregate score on level Number of individual indicators with negative performance Level -2 -2 -1 0 0 0 1 -2 0 -1 0 -1 -2 -1 -1 -2 1 -2 2 -1 11 Growth

-2 2 -2 -1 1 2 2 -1 2 0 -2 0 5

Specific labour supply measures for older-workers
Implicit tax on continued work Coverage of early retirement Life-long learning: Participation of the population aged 55-64 in education and training Average exit age from the labour force- Women Average exit age from the labour force- total Employment rate of older workers aged 55 to 64- Men Employment rate of older workers aged 55 to 64- Women Aggregate score on level Number of individual indicators with negative performance

Level 1 1 -1 0 1 -1 0 2

Growth

-2 2 2 1 1 1

Example: Business environment

Barriers to entrepreneurship and business environment

Level

Growth -2

Business investment - Gross fixed capital formation by the private sector as a percentage of GDP (STRIND er070)) (+) 1 Business demography - Birth rate - Number of real enterprise births of year n, divided by the population of active enterprises of year n (STRIND er081) (+) 0 Business demography - Survival rate - The percentage of all real enterprise births of year n which are still active in year n+2 (STRIND er082) (+) -2 Administrative burdens on startups (OECD) (-) -1 Regulatory and administrative opacity (OECD) (-) -2 Starting a Business - time, procedure, cost, capital requirement, average rank (World bank doing business) (-) -1 Dealing with Licenses - procedures, time, cost, average rank (World bank doing business) (-) -2 Registering Property - procedures, time, cost, average rank (World bank doing business) (-) 0 Paying Taxes average rank (World bank doing business) (-) -1 Enforcing Contracts - procedures, time, cost, average rank (World bank doing business) (-) 0 Closing a Business time, cost, recovery rate average rank (World bank doing business) (-) -2 Propensity towards entrepreneurship - Total population considering self-employment (in %) (European Commission, Flash Eurobarometer) (+) -2 Aggregate score on level -1 Number of individual indicators with negative performance 8

2 0 -1 -1 -1 -1 -1 5

Example: R&D, innovation and ICT

R&D, innovation policies and ICT

Level

Growth 2 2 2 2 2

Summary Innovation Index 2006 -2 High-tech exports - Exports of high technology products as a share of total exports -1 Gross domestic expenditure on R&D (GERD) - Percentage of GDP -1 Gross domestic expenditure on R&D (GERD) by source of funds - industry - Percentage of GDP -1 Gross domestic expenditure on R&D (GERD) by source of funds - government - Percentage of GDP -1 Gross domestic expenditure on R&D (GERD) by source of funds - abroad - Percentage of GDP -2 Science and technology graduates - total - Tertiary graduates in science and technology per 1000 of population aged 20-29 -2 Patent applications to the European Patent Office (EPO) - Number of applications per million inhabitants -2 Patents granded by the United States Patent and Trademark Office (USPTO) - Number of patents per million inhabitants Venture capital investments - early stage - Percentage of GDP -1 Venture capital investments - expansion & replacement - Percentage of GDP -2 Level of Internet access - households - Percentage of households who have Internet access at home -2 ICT expenditure - IT - Expenditure on Information Technology as a percentage of GDP 0 ICT expenditure - Telecommunications - Expenditure on Telecommunications Technology as a percentage of GDP 1 E-commerce via Internet - Percentage of enterprises' total turnover from e-commerce via Internet -1 E-government on-line availability - Percentage of online availability of 20 basic public services -2 E-government usage by individuals - total - Percentage of individuals aged 16 to 74 using the Internet for interaction with public authorities -1 E-government usage by enterprises - Percentage of enterprises which use the Internet for interaction with public authorities 1 Broadband penetration rate - Number of broadband lines subscribed in percentage of the population -2 Aggregate score on level -1 Number of individual indicators with negative performance 15

2 2 2 -1 0 2 0 2 1 1

Method III - Modelling the impact of structural refroms
Simulations included in 2007 APR
Reform area Labour and product markets Effective retirement age Internal Market Administrative burden Increased R&D spending
[1]

Modelling approach

Coverage

QUEST II EU15 econometric estimates 13 OECD countries[1] ECFIN ageing model QUEST II QUEST III WorldScan QUEST III WorldScan EU15 aggregate EU25 aggregate EU15 aggregate EU25 EU15 aggregate EU25

Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom.

Main results
Reform area Labour and product markets Input into models Changes in policy variables (e.g. tax wedge, taxes, unemployment benefits and regulation of PMs) since 1995. One year increase in retirement age Gains from greater integration and enlargement (e.g. higher competition and more trade) over 1992-2006 25% reduction in administrative burden by 2010 Reaching national R&D expenditure targets by 2010 Results 2% increase in EU15 GDP and 1.4 p.p. reduction in structural unemployment 1.5% increase in EU15 GDP by 2025 and 2.5% by 2050 2.2 increase in EU25 GDP and 1.4 increase in employment 1.3% increase in GDP by 2025 2.6 to 4.4% increase in EU25 GDP (25-30% due to spillovers)

Effective retirement age Enlarged Internal Market

Administrative burden Increased R&D spending


								
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