how can europe compete? gavin cameron university of oxford oubep topical economics 2006
Post on 20-Dec-2015
217 views
TRANSCRIPT
How Can Europe Compete?
Gavin Cameron University of Oxford
OUBEP Topical Economics 2006
Oxford University Business Economic Programme
2
the Lisbon Agenda
• UK and European policymaking with respect to economic growth is bound up with the EU’s Lisbon Agenda: Plan to make the EU ‘the most dynamic and competitive knowledge-based economy in the world’ , by 2010.
• This talk outlines– Europe’s relative performance: GDP per capita, productivity,
and labour utilisation;– The Lisbon Agenda: Microeconomic Reforms and Employment
Guidelines;– The simple economics of growth and jobs.– Some suggested structural reforms.
Oxford University Business Economic Programme
3
GDP
Pop
= GDP
Hour
Hours
Pop
*
living standards
• Economists use a number of different measurements of national income and productivity -the simplest is GDP per capita.
• More formally, though, GDP per capita is a function of productivity per hour and labour utilisation:
Oxford University Business Economic Programme
4
Source: Robert J Gordon (2005)
Oxford University Business Economic Programme
5
Source: O’Mahony and Van Ark (2003), figure 1.1.
Oxford University Business Economic Programme
6
the sources of productivity growth
• Growth of labour productivity = weighted growth of capital per worker hour + growth of total factor productivity
• Growth of total factor productivity– Higher quality products– New varieties of products– Better ways to use existing inputs
Capital
Hour
=GDP
Hour
* Total Factor Productivity
Oxford University Business Economic Programme
7
growth accounting
Capital per worker (K/L)
A rise in technology raises the steady-state level of output per capita. Part of this rise (AB) is the pure effect of technical change (TFP), the other part (BC) is due to ensuing capital accumulation.
A
B
C
Output per worker, Y/L
Output per worker, Y’/L
Output per worker (K/L)
Oxford University Business Economic Programme
8
Source: O’Mahony and Van Ark (2003), table 1.4b.
Oxford University Business Economic Programme
9
Source: O’Mahony and Van Ark (2003), figure III.5
Oxford University Business Economic Programme
10
Source: O’Mahony and Van Ark (2003), table III.14.
Oxford University Business Economic Programme
11
Source: O’Mahony and Van Ark (2003), table III.5.
Oxford University Business Economic Programme
12
Source: O’Mahony and Van Ark (2003), table II.7
Oxford University Business Economic Programme
13
Oxford University Business Economic Programme
14
labour utilisation
• Labour utilisation is captured by two broad elements.– Labour intensity is the number of hours worked per worker.– Employment rate is the proportion of the population that is in
work.• Government policies can affect both of these, for example, by
setting maximum working hours or by making hiring & firing more costly.
Hours
Worker
=Hours
Population
Workers
Active
*Active
Population
*
Oxford University Business Economic Programme
15
equilibrium employment
employment
labour supply, Ls
active workforce
voluntary
NAIRU
wage-setting, WS
price-setting: firms set a constant mark-up of prices over costs, PS
real wage
labour demand, Ld
involuntary
Oxford University Business Economic Programme
16
how to raise employment
• Need to target three groups: voluntary unemployed, involuntary unemployed, and the inactive:– Reform of the benefit system, especially duration;– Limitations on union power: no closed shops, no secondary
picketing, secret ballots; – Changes to wage bargaining, especially increased employer-
union coordination;– Tax reform (lower payroll taxes, minimum wages for the
unskilled etc);– Flexicurity: Cuts to employment protection, coupled with active
labour market policies;– Active Labour Market Policies: training and work experience
schemes for long-term unemployed, unskilled, youths, women, older workers;
– Increased labour mobility.
Oxford University Business Economic Programme
17
how not to raise employment
• Cunning demand-side policies (unlikely to have much effect in the long-run, plus very expensive);
• Job-sharing or cuts in working hours;• Increased investment by firms (although this will raise wages);• Protectionism (any benefit to workers massively outweighed by
costs to consumers).
Oxford University Business Economic Programme
18
unemployment around the world
Source: Faggio and Nickell (2006)
Oxford University Business Economic Programme
19Source: BIS (2006)
Oxford University Business Economic Programme
20
Oxford University Business Economic Programme
21
Lisbon Agenda reforms
• Microeconomic Reforms:– The Lisbon Agenda argues that the ‘knowledge economy’ is
vital to the future of Europe.– It proposes that the EU should aim to spend 3 per cent of GDP
on R&D.– But EU problems not just in the high-technology sector.
• Employment Guidelines:– Attract and retain employment through modernising social
protection;– Improve adaptability of workers and firms and hence
flexibility of labour market;– Increase investment in human capital (education and skills).– But strong opposition in many countries to cuts in benefits
and employment protection.
Oxford University Business Economic Programme
22
growth and jobs
• Labour Utilisation– In the short to medium-run, aggregate employment in an economy
is largely a function of macroeconomic policy. Evidence suggests that strong, balanced, growth tends to raise employment a little, but sectoral reallocation of labour may reduce employment a little.
– In the long-run, aggregate employment is mainly affected by the workings of the labour market.
• Productivity– In the short to medium-run, rising employment may exert
downward pressure on productivity and wages, especially if the newly employed are young, unskilled, female, old or are long-term unemployed (and hence have lower productivity than existing workers).
– In the long-run, increased capital accumulation will tend to offset this effect and there is little evidence of an effect of employment rates on growth. However, some factors that make employment outcomes worse (such as bad labour relations) may also be bad for growth.
Oxford University Business Economic Programme
23Source: O’Mahony and Van Ark (2003), table I.1.
Oxford University Business Economic Programme
24Source: OECD (2005)
Oxford University Business Economic Programme
25Source: OECD (2005)
Oxford University Business Economic Programme
26
summary
• Recent European economic performance has been weak:– This is particularly the case for labour utilisation.– But also increasingly true for productivity growth.– Weakness especially in agriculture, manufacturing, distribution
and financial services.– Strong in utilities, construction, communications.
• Lisbon agenda unlikely to help soon:– Too focussed on high-tech; too little on low tech and job creation.– European workers, especially the long-term unemployed
unskilled, women, youths and older workers need pathways to work.
– Question marks over willingness of governments to implement agenda, and over ability of ECB and finance ministries to co-ordinate macroeconomic policy.
• But Europe is very diverse, so difficult to generalise!