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The following OECD assessment and recommendations summarise Chapter 3 of the Economic survey of Belgium published on 13 March 2007.
How could the functioning of the labour market be improved?
Since 2000, a significant share of new jobs has been created in the public sector, although more recently a welcome development has been the emergence of the private sector as the main source of employment growth. The increase in the level of employment has been accompanied by an expansion of the labour supply and the unemployment rate has therefore hardly changed. Belgium therefore remains characterised by a high level of unemployment, rising but still low participation rates and a significant mismatch between labour demand and labour supply, which is illustrated by large geographical differences in labour market situations. The authorities should therefore continue focussing their efforts on improving labour market outcomes.
Similarities and differences in policies, institutions and labour market performance
Note: Labour market interventions are measured by active labour market policies, the degree of wage bargaining coordination, the coverage of wage agreements, employment protection legislation, the tax wedge, product market regulation and unemployment benefit gross replacement rates, all measured on or around 2003. The performance variables cover unemployment and employment rates. The vertical axis shows both labour market performance and the degree to which interventions tend to depress labour supply. The horizontal axis measures the overall stance of interventions.
Source: OECD (2006), Employment Outlook.
The Belgian government has recently taken a series of steps to discourage early exits from the labour market and encourage re-entry of those who have stayed out of activity. These measures have included the closing of some early retirement paths, as stipulated in the Solidarity Pact between the Generations. In addition, activation measures have been enacted, notably in the form of individualised road maps for returning to work, follow-up interviews and possible sanctions in case of insufficient job search activities. Activation, however, is only applied to unemployed less than 50 years old and with a relatively long unemployment history. Meanwhile, other labour market policies have been kept unchanged, notably the unemployment benefit system. More emphasis has therefore to be placed on interventions to make work pay. The effectiveness of labour market activation measures could be enhanced by limiting unemployment benefit duration. Alternatively, the government should consider gradually phasing down benefits. This could possibly be combined with a higher initial replacement rate. The monitoring of search effort should be jointly undertaken by the federal and regional public employment services, which would also help to secure consistency of feedback and sanctioning mechanisms. To increase the employment rates of groups with weak labour market attachment, a number of measures should be applied, including further closing of exit routes for early retirement, applying early activation to young school leavers, reducing high effective marginal tax rates for low-income earners and better targeting of wage subsidies to low-skilled earners.
Ratio of long-term unemployed (>1 year) to total unemployed
Source: OECD (2006), Employment Outlook.
An important pillar of the authorities’ strategy is the emphasis on wage moderation. The centralised wage bargaining system is based on preserving external competitiveness by setting an indicative norm for maximum labour cost increases that keep developments in line with the three main trading partners. There is also a lower bound for wage increases stemming from the system of automatic indexation of wages to price developments. The indexation system is mandatory for all and existing opt-out rules in sectoral wage agreements are rarely applied. These features mean that bargaining can only take place within a narrow range defined by the indexation floor and the wage norm ceiling, which has recently been in the order of only 1 to 2½ per cent over the two year period covered by the wage agreements. As a result, there is in practice little differentiation of wage developments across geographical locations. Thus, the centralised wage bargaining system should be revised to allow wage developments to better reflect local labour market conditions. As a minimum, this requires facilitating the use of opt-out rules and promoting the use of all-in agreements. In the medium term, it would be advisable that the social partners consider phasing out the wage indexation system, so as to allow greater real wage flexibility. Inspiration for reforms can also be found in the development of the wage negotiations in some of the Nordic countries, where local conditions are increasingly taken into account in the central bargaining framework.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Belgium 2007 is available from:
For further information please contact the Belgium Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Jens Hoj, Ekkehard Ernst and Stefaan Ide under the supervision of Patrick Lenain.