sintra, portugal, 23 may 2015 - european central bank...2015/05/23 · solid growth at the global...
TRANSCRIPT
Structural perspectives on European
employment, productivity and growth
in a global context
Sintra, Portugal, 23 May 2015
Catherine L. Mann OECD Chief Economist
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Key messages
Prolonged weak demand has left many European economies with heavy public debt burdens, low investment and slow potential growth
Improved structural policies, in the context of active demand management, would address these challenges
Some structural policies could also help to contain inequality
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1. Euro-area 15 countries. Source: Preliminary June 2015 OECD Economic Outlook database (STEP97).
High public debt ratios are one
legacy of the crisis
From the onset of the crisis, debt ratios were pushed up by higher deficits, financial rescue packages and slow (or negative) nominal GDP growth
Bringing them back to prudent levels is among the challenges facing European economies
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65
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75
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85
90
95
100
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100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
A. General government gross debt, Maastricht definition Per cent of GDP
-4
-2
0
2
4
6
8
10
12
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
B. Components of annual change in debt-to-GDP ratio Percentage points
Nominal GDP growth Nominal debt increase Change in debt/GDP ratio
Public debt dynamics in the euro area1
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Sluggish investment has been a factor
preventing growth from reducing debt burdens
Weak business investment post-crisis mostly explained by subdued demand
Economic/policy uncertainty has fallen, but still a drag on investment
Restrictive financing conditions pertained in some countries, especially early on in the crisis
OECD work finds that restrictive product market regulation hinders investment
Public investment, potential higher multipliers, has often been cut to meet fiscal consolidation objectives -10 -8 -6 -4 -2 0 2 4
Australia
Canada
Sweden
United States
Germany
United Kingdom
Netherlands
France
Japan
Ireland
Spain
Italy
Portugal
Greece
Non-residential fixed investment Volumes, average annual percentage change from
2007 to 2014
Note: Non-European countries in blue. Source: Preliminary June 2015 OECD Economic Outlook database (STEP97).
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Low investment explains much of the
post-crisis slowdown in potential growth
Growth of OECD potential output per capita Contribution of components in percentage points
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Active population rate ² Potential employment rate¹
TFP Capital per worker
Potential per capita growth
1. Potential employment as a share of the working-age population (15-74). 2. Share of the population of working age in total population. Source: Preliminary June 2015 OECD Economic Outlook database (STEP97).
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Constructive collective action with regulatory harmonisation would generate positive externalities
• Recent OECD work suggests that cutting the heterogeneity of product market regulation by one fifth could increase intra-EU FDI by about 20%
The Plan offers common vocabulary and spending
• Acts on supply and demand sides
• Outlays by national governments to the European Fund for Strategic Investment (EFSI) not counted under deficit rules
€21 billion in guarantees from EC and EIB for €60 billion in EIB bond issuance to seed the EFSI; target of €315 billion of new investment over 3 years
In the context of weak investment, the
Juncker Plan could be a useful initiative
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Solid growth at the global productivity frontier but spillovers disappoint Labour productivity; index 2001=0
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy: micro evidence from OECD countries ” forthcoming OECD Working Paper.
TFP growth has also slowed, with
diffusion one apparent problem
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Structural factors shape diffusion
Source: Saia, A., D. Andrews and S. Albrizio (2015), “Public Policy and Spillovers From the Global Productivity Frontier:
Industry Level Evidence”, OECD Economics Department Working Papers, forthcoming.
Globalisation Reallocation Knowledge-Based Capital
Estimated frontier spillover (% p.a.) associated with a 2 percentage point increase in MFP growth at the global productivity frontier
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Note: The figure shows the percentage of workers who are either over- or under- skilled and the simulated gains to allocative efficiency rom reducing skill mismatch in each country to the best practice level of mismatch. The figures are based on OECD calculations using OECD Survey of Adult Skills (2012). Source: M. Adalet McGowan and D. Andrews (2015), "Labour Market Mismatch and Labour Productivity: Evidence from PIAAC Data" OECD Economics Department Working Paper No. 1209.
Reducing skill mismatches is a promising
avenue for boosting productivity
Potential gains from reducing skill mismatch
0
2
4
6
8
10
12
0
5
10
15
20
25
30
35
40
POL CAN BEL SWE USA FRA NLD DNK JPN FIN EST KOR GBR NOR SVK AUS DEU AUT IRL CZE ESP ITA
Percentage of workers with skill mismatch (LHS)
Gains to labour productivity from reducing skill mismatch (RHS)
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Note: The dot is the average probability to have mismatch evaluated at the median level of the policy and individual characteristics. The distance between the Min/Max of the relevant policy indicator and the median is the change in the probability of skill mismatch with the respective policy change. Source: M. Adalet McGowan and D. Andrews (2015), "Labour Market Mismatch and Labour Productivity: Evidence from PIAAC Data" OECD Economics Department Working Paper No. 1209.
Skill matching affected by structural
policies and business environment
Framework policies and the probability of skill mismatch
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-3
-2
-1
0
1
2
3
average
median
lower-middle class
poor
Structural reforms and change in household disposable income Scaled relative to 1pp increase in GDP per capita in the long run
Source: OECD Economics Department Working Paper 1180. Can pro-growth policies lift all boats? An analysis based on
household disposable incomeBy Orsetta Causa, Alain de Serres and Nicolas Ruiz.
Structural policy choices
also affect inequality
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Summing up
Mutually reinforcing macro and structural policies in Europe are needed to revive investment, employment and TFP growth
Collective action by the EU/EA could generate positive externalities
Choosing the right pro-growth structural policies can mitigate inequality as well