TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

09/02/2015

For the full analysis of the report, download the TUAC paper on the right hand side.

Going for Growth 2015 (GfG 2015), the new issue of OECD’s flagship publication on recent structural policy developments and reform priorities for the current year has been launched in Istanbul on 9 February 2015. One of its key findings is that the pace of structural reforms has been slowing in the majority of advanced economies. This suggests that governments have increasingly lost confidence in the alleged benefits of implementing structural reforms. This finding, which is causing great disappointment among the report’s authors and advocates of structural reforms, may reflect a slight relief for many workers in the countries concerned. They have all too often been affected by adverse effects of structural reforms, in particular by those on labour markets. In this respect, the report acknowledges that “in the short run, several reforms entail transitional costs, especially if introduced under unfavourable macroeconomic conditions and limited room for counter-cyclical macroeconomic policy or flanking measures to protect the poor.” More specifically, the report points out that in some cases the hoped-for long-term growth gains “can be preceded by short-run losses” and that “growth benefits may take more time to materialise in a downturn.”   Thus, some reforms may hit the most vulnerable in the short run, even if such negative effects are allegedly overturned by the benefits of reform in the medium run.

Although slightly more nuanced than previous issues, Going for Growth 2015 fails to take adverse effects of structural reforms sufficiently into account

It is interesting to note that the report openly displays difficulties many governments are facing in their efforts to push for reforms in a context of weak aggregate demand, high unemployment and the adverse effects of reforms implemented. As examples for adverse effects of structural labour market reforms, GfG 2015 refers to social protection reforms aimed at encouraging jobseekers’ return to work through a tightening of conditions for receiving unemployment benefits in a context of severe labour market slack, which can temporarily depress overall employment. The editorial of GfG 2015, signed by OECD Chef Economist, Catherine Mann, is particularly frank in this respect. It notes that in “some of the countries hardest-hit by the crisis, substantial labour market reforms aimed at restoring competitiveness have been introduced without commensurate and parallel efforts in product markets and without the availability of fiscal resources to cushion the social impact. The result has been severe job and income losses, hurting young people the most.”  

In a nutshell: In line with previous research, GfG 2015 not only confirms that regulatory reform and institutional change contributed to unemployment, it also confirms the legitimate concerns regarding adverse employment effects of implementing labour market reforms in times of weak aggregate demand and high unemployment; concerns repeatedly expressed by trade unions and a number of economists looking at labour markets without blinders.  Against this backdrop, it is welcome that GfG 2015 emphasizes that “postponing such (labour market) reforms until the labour market shows clear signs of recovery is legitimate in economies still facing weak demand.”