This paper addresses the conflict between poverty reduction and work incentives implicit in the income protection policies of several OECD countries. Alternative approaches to reducing the well-known "poverty trap" are identified and assessed, including Credit and Negative Income Tax programmes, earnings supplementation, and two marginal employment subsidy plans. It is concluded that a judicious combination of a moderate income guarantee plus programmes to stimulate the supply of and the demand for lower skilled labour could yield gains in a number of dimensions relative to existing income protection arrangements. A stylised "blueprint" which illustrates such an approach is presented.
Stefano Scarpetta
This paper discusses the role of labour market policy and institutional factors in explaining the differences in structural or "equilibrium" unemployment across 17 OECD countries. The results suggest that these factors do matter for the level of structural unemployment and for the speed of labour market adjustment after an exogenous shock. In particular, generous unemployment benefit systems and stringent employment protection legislation are associated with high unemployment and a lower speed of adjustment. Greater coordination among social partners in the wage bargaining process as well as both highly centralised and fully decentralised bargaining systems are beneficial to labour market performance.
John P. Martin
Much prominence has been given to the role of unemployment and related social welfare benefits as a determinant of high and persistent unemployment. Quantifying this effect depends crucially on the ability to measure accurately the so-called "replacement rate", the proportion of expected income from work which is replaced by unemployment and related welfare benefits. The OECD has devoted much time and effort recently to gathering comparable data on gross and net replacement rates for most OECD countries. This note aims to describe these data briefly and compare them with similar measures computed by other cross-country studies.
Paul Geroski, Paul Gregg and John Van Reenen
This paper examines whether imperfect competition in product markets has contributed to unemployment problems in industrial economies. Microeconometric evidence on the origin and extent of product market power and the degree to which these rents are captured by workers is surveyed. Product market imperfections appear widespread and, although large deviations of price from marginal cost appear shortlived, many firms enjoy persistently high returns for long periods. Wages are partially determined by rent sharing but this phenomenon is not solely confined to the union sector. The implication is that reductions in product market imperfections would raise employment.
Norbert Funke
This paper assesses the role of economic fundamentals as causes for devaluations/regime shifts in 12 OECD countries since the late 1970s using a non-linear estimation procedure (probit model). The calculation of probabilities of parity changes indicates that devaluations mainly occurred when economic fundamentals had deteriorated. More recently, exchange rate pressures appear to be triggered by smaller deteriorations in economic fundamentals, as compared with the early 1980s. Prospects of devaluation also appear to be sensitive to changes in key domestic variables, which are traditionally not viewed as direct determinants of "equilibrium exchange rates", such as changes in the rate of unemployment.
Economic Policy Reforms: Going for Growth 2008
