Methodology to assess the progress in Lisbon strategy Smilovice, 5 th December 2007

Methodology to assess the Methodology to assess the progress in Lisbon strategyprogress in Lisbon strategy

Smilovice, 5Smilovice, 5thth December 2007 December 2007

Alexandr HobzaAlexandr HobzaUnit E-1:Unit E-1:Coordination of structural reforms and their Coordination of structural reforms and their

macroeconomic implicationsmacroeconomic implications DG ECFIN, European CommissionDG ECFIN, European Commission

Outline of presentationOutline of presentation

1. Lisbon strategy: structural reform process in Europe

2. Methodology to assess progress with Lisbon Strategy

3. Tracking reforms4.Multi-step methodological approach to

identifying growth-enhancing policies 5. Modelling effects of reforms

Lisbon strategyLisbon strategy

Economic perspectiveEconomic perspective

Need to deal with economic challengesNeed to deal with economic challenges Low growth potential and adjustment capacity Low growth potential and adjustment capacity

(euro area)(euro area) GlobalisationGlobalisation AgeingAgeing Climate changeClimate change

ResponseResponse Macroecomic policies geared towards stability Macroecomic policies geared towards stability

and growthand growth Comprehensive coordinated process of structural Comprehensive coordinated process of structural

reformsreforms


Historical perspectiveHistorical perspective

Continuation of pre-Lisbon coordination Continuation of pre-Lisbon coordination processesprocesses

Politically driven process – European Politically driven process – European Council meetings and headline targetsCouncil meetings and headline targets

Mid-term review in 2005 and re-launch Mid-term review in 2005 and re-launch of the Strategyof the Strategy


Procedural perspectiveProcedural perspective

Rationale for coordinationRationale for coordination Coordination of economic policies in EMUCoordination of economic policies in EMU Lisbon: structured coordination based on soft Lisbon: structured coordination based on soft

toolstools Integrated Strategy for Growth and Jobs– new Integrated Strategy for Growth and Jobs– new

governance arrangementsgovernance arrangements National ownership as a solution

Political economy elements (wider participation, more focus, integration of policies)

The national key challenges at the core of the EU strategic approach

Spillovers of structural policies

Policy area Model Simulation assumptions

Overall long-run

effect on GDP in

EU

Average spillover

s (as share of overall effect)

R&D

WorldScan

Increasing R&D intensity from 1.86% to 2.7% in 2010 (partially paid

through a R&D subsidy financed by lump-sum transfers from

households).

3.3% 50%

QUEST IIIIncreasing R&D intensity from 1.86% to

2.54% in 10 years through a R&D subsidy (financed from

consumption tax).

4.8%* 20%

Skills WorldScan

Achieving skill targets set by 2003 European Council. Input into simulation (effects on labour

efficiency from these policies and demographic developments) were

modelled in a special model.

2.1%* 4%

Administrative burden

WorldScanReduction in administrative burden by

25% modelled as a labour efficiency shock.

1.9% 5%

NiGEMReduction in administrative burden by

25% modelled as a shock to mark-up of prices over unit costs.

1.1% 10%

Employment targets

WorldScan Labour supply shocks from achieving the 70% target for employment rate. 7% 4%

Complementarities between reforms

Trhy produktů Znalostní ekonomika Trh práce Finanční trhy Makro

Trhy produktů ***Více konkurence => více

investic do VaV (křivka ve tvaru „U“)

Nižší renty snižují odpor vůči reformám; nižší

regulace na trzích produktů zvyšuje efektivitu

reforem na trzích práce

Větší poptávka po úvěrech => větší příležitosti pro

finanční sektor;

Vyšší růst a nižší inflační tlaky => větší prostor pro

akomodativní makroekonomické politiky;

Znalostní ekonomika

Zvyšování lidského kapitálu => větší

nabídka kvalifikovaných

pracovníků a větší flexibilita při realokaci

zdrojů do nových aktivit

***

Vyšší průměrná úroveň dovedností pracovníků =>

menší potřeba ochrany přes instrumenty na trzích

práce; více inovativních firem => větší poptávka po

práci

Větší poptávka po úvěrech a větší investiční příležitosti

Vyšší růstový potenciál usnadňující formulaci makroekonomických

politik

Trh práce

Lehčí realokace pracovního vstupu =>

reformy trhu produktů jsou efektivnější

Nižší náklady práce a větší flexibilita => lepší prostředí

pro začínající inovativní firmy

***

Větší objem úspor k dispozici; menší

pravděpodobnost osobních bankrotů

Větší flexibilita při stanovování mezd => větší

odolnost vůči šokům a menší tlak na monetární a

fiskální politiku

Finanční trhyNižší cena kapitálu =>

lepší alokace zdrojůDostupnější kapitál pro

high-tech firmy

Lepší pojištění přes finanční trhy => menší

potřeba pro pojištění na trzích práce

***Menší náklady na financování dluhu

Makro

Makroekonomická stabilita => lepší

podmínky pro reformy; méně „crowding out“ soukromých investic

Větší kvalita veřejných financí => realokace

prostředků na výdaje na VaV a vzdělávání

Makroekonomická stabilita => snižují se

přizpůsobovací náklady a snižuje se odpor vůči

reformám; zdravé veřejné finance => větší prostor pro

kompenzaci jedinců tratících na reformách

Makroekonomická stabilita a růst => nižší

pravděpodobnost finančních krizí

***

Economic policy Economic policy coordination in EMUcoordination in EMU

Monetary policyECB

Article 105

Monetary policy stance

Broad Economic Policy GuidelinesArticle 99

Macroeconomic DialogueCologne Resolution

Stability and Growth PactStability/Convergence Programmes

Article 104, Amsterdam Resolution and Council Regulations

Community Lisbon Programme

Macroeconomic conditions Smoothly operating markets, potential growth

Exchange rateCouncil (+ECB/Commission)

Article 111

National Reform Programmes

Budgetary stance

Employment GuidelinesArticle 128

Integrated Guidelines PackageCommission, Council, EP, European Council

Types of policy-Types of policy-making in the EUmaking in the EU

POLICIES FORM OF

COORDINATION

MODE OF

COORDINATION

ACTORS

INVOLVED

PROCEDURES

Monetary policy Single policy (euro area) Single institution ECB

Exchange rate Single policy (euro area)

Coordination in the Council

Council

ECB

Eurogroup

Commission

Competition policy Single policy Implementation by the Commission

Member States Commission Council

SINGLE

POLICY

External trade (customs union)

Single Policy Coordination in the Council

Member States Commission Council

Budgetary policy

(balances)

- Treaty rules

- Commonly agreed rules

and objectives

- Information exchange

- Peer review


Joint fora

Member States

Commission

Council

Eurogroup

Excessive Deficit Procedure

Stability and Growth Pact

Broad Economic Policy Guidelines

HARD

COORDINATION

Internal Market

(structural reforms)

- Rules

- Joint decisions

- Council directives

- Peer review


Member States

Council

Commission

POLICIES FORM OF

COORDINATION

MODE OF

COORDINATION

ACTORS

INVOLVED

PROCEDURES

Policy-mix - Dialogue


Joint fora ECB

Commission

Council

Eurogroup

Social partners

Macroeconomic Dialogue

Budgetary policy

(quality and sustainability of public finances)

- Commonly agreed

objectives

- Guidelines

- Peer review


Member States

Commission

Council

Eurogroup


Stability and Growth Pact

Labour market policies



- Discussion of best

practices

- Guidelines

- Peer review


Joint fora

Member States

Commission

Council

Social partners

Employment Guidelines


SOFT

COORDINATION

Product and capital market policies



- Discussion of best

practices

- Guidelines

- Peer review


Member States

Commission

Council


Types of policy-Types of policy-making in the EUmaking in the EU

Lisbon strategy: Lisbon strategy: governance governance structurestructure

Overall policy objectives set by Heads of State of Government (Spring European Council) + Integrated Guidelines as a blueprint for policy design

Some common targets, e.g. employment rates of 70% by 2010, to raise spending on R&D to 3% of GDP, reduce administrative burden in complying with regulations by 25% between 2006 and 2010

Member States (not the European Commission) define their key growth challenges and reform commitments

Reform priorities fixed for a three-year cycle, BUT annual reporting and evaluation exercise which leads to country specific political recommendations

Lisbon strategy: A political process supported by economic analysis• Based on the premise an external constraint and peer

pressure can help overcome reform bottlenecks• short-term (concentrated) costs versus uncertain long-

term (dispersed benefits• rent-seeking interest groups can capture policy makers

• Also recognises that there are economic spillovers (trade, internal market) and political economy spillovers (institutional learning, demonstration effects, peer pressure) in coordinating at EU level

• Combination of evidence-based analysis supported by a political process can generate results

• Can take years to “frame” a consensus on the nature/scale of policy challenge, and on the policy reforms needed to tackle them

Work on the Lisbon evaluation methodology

A three-pronged approach

I: Tracking structural reforms

II: Quantifying their impact on growth and jobs

III: Modelling

Practical arrangements

ECFIN working together with other lead DGs, i.e. SG, ENTR and EMPL

Developing analysis working with new Lisbon Methodology (LIME) Working Group attached to the EPC

Method I – trackingstructural reforms

Developing institutional databases on reforms

- LABREF: an operational database of enacted labour market reforms

- MICREF : a database of microeconomic reforms, currently being developed

Reporting tables/grids attached to NRPs

- working with LIME group to streamline format and content

LABREF database

database on enacted labour market reforms in 9 areas covering labour taxation, unemployment and social benefits, ALMPs, EPL, disability and early retirement schemes, pension systems, wage bargaining, working time organisation, immigration and mobility.

completed for 2000-2006 period (except BU and RO)

LABREF database

Measures contained in LABREF by reform area: 2000-2006(% on total reforms in each geographical area)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

LabourTaxation

Benefits ALMPs EPL Pensions WageBargaining

WorkingTime

ImmigrationMobility

New Members States

euro-zone 12

EU15-excl euro zone

MICREF database

database of microeconomic reforms developed in cooperation between DGs ECFIN/ENTR and EPC with assistance from JRC

includes policies such as market integration, competition policy, sector specific regulation, start-up conditions, business environment, R&D and innovation, education)

Further steps

- back-dating to 2004/5 by Spring 2008

- development of Internet interface underway

Reporting tables

Description of measure

Rationale of measure

Timeline start

Timeline end

Status Comment (voluntary)

Integrated Guidelines

Functional Classificati

on

Key challeng

es

REC. and Points to

watch

Euro area REC

Comment (voluntary)

Follow up

proced-ures

Direct budget

cost

Eurostat indicator

Impact variable

Input indicator

Output indicator

Measure 1

Description module Classification module Impact and follow-up module

<------------------------------------------------ ------ ESSENTIAL --------------------------------------------> <---------------- DESIRABLE ------------->

Method II – analysing the impact of reforms on growth and jobs

Starting point is a focus on growth drivers through decomposition of GDP

- quantify the sources of per capita GDP gaps in the EU

- quantify the determinants of growth over 2000-2005 using a growth accounting approach decomposed into 12 components (especially detailed on the labour market side)

The purpose is

- to provide an analytical benchmark for analysing the impact of structural reforms on growth and employment

- verify that policies are focussing on the most important growth drivers

Growth determinants and policy measures

HDP na hlavu

Využití pracovní síly (odpracované hodiny na hlavu)

Produktivita práce (HDP na odpracovanou hodinu)

Odpracovanéhodiny na

pracovníka

Kapitálová intenzita (kapitál na odpracovanou

hodinu)

Míra zaměstnanosti

Souhrnnáproduktivita faktorů

Strukturální míra nezaměstnanosti

Reformy na trzích práce

Integrace finančních trhů

Opatření pro znalostní ekonomiku

Reformy na trzích zboží a služeb

Míra participace na trhu práce

Čistý technologický

pokrok

Kvalita pracovnísíly (složenídovedností)

Kvalita kapitálu(složení a kvalita

aktiv)

HDP na hlavu

Využití pracovní síly (odpracované hodiny na hlavu)

Produktivita práce (HDP na odpracovanou hodinu)

Odpracovanéhodiny na

pracovníka

Kapitálová intenzita (kapitál na odpracovanou

hodinu)

Míra zaměstnanosti

Souhrnnáproduktivita faktorů



Reformy na trzích práce

Integrace finančních trhů

Opatření pro znalostní ekonomiku

Reformy na trzích zboží a služeb




pokrok


pokrok




aktiv)


aktiv)

Method II – a multistep approach

Step 1: Identifying the components of GDP where MSs are underperforming (in terms of level and growth) relative to a given benchmark through GDP accounting.

Step 2: Identifying the conceptual links between policy interventions, a list of indicators and the underperforming GDP components.

Step 3: Using performance and policy indicators to identify the most problematic policy areas/issues, which are likely to be responsible for the income gaps/weak growth components.

Step 4: Bringing together the results of step 1 (GDP accounting) and step 3 (indicator-based assessment of policy area performance) and supplementing them with country-specific expertise and data

Step 5: Present the result in a policy context (link with NRP and Key Challenges

Step 1: Growth accounting

Standard disaggregation DG ECFIN refined disaggregation

Degree of exogeneity or endogeneity

Working age population

Nativepopulation

Exogenous

Net migration Partially endogenous

Working age population share in total population

Exogenous

Labour market Participation

Youth Participation Largely endogenous

Male prime-age participation Partially endogenous

Female prime-age participation

Partially endogenous

Older-worker participation Largely endogenous

Unemployment rate Unemployment rate Partially endogenous

Average hours worked per person

Average hours worked per worker


Capital deepening (capital per hour worked)

Labour quality Largely endogenous

Capital deepening(capital per low-skilled labour hour worked)


•Total factor productivity

Total factor productivity Endogenous

Step 1 – Growth accounting

)1(1

urPARTSWPHLH

KQA

POP

LH

LH

Y

POP

YL

Y total GDPH the annual hours worked per person employedL total employment, which the product of POP, PART and (1-ur) α the share of labour in total value added, which is set equal to 65% in all countriesPOP total populationSWP the working age population share (15-64) in total population PART total labour force participation rateur the overall unemployment rateQL indicator of labour qualityK the stock of capitalTFP total factor productivity as a residual


..

.

1

,, 2002

2002

HighMediumLowS L

StS

tHtMtLt W

WE

EEEQ

Where Es and Ws are respectively employment and hourly wage (without overtime) for each educational attainment (ISCED-3).

To capture the change in average quality of labour, we compute the average relative productivity of a person employed compared to those with low educational attainment:


1

111 )()()()(L

LLLL QHL

KQHLAKQHLQHLAKQHLAY

1

1

1

1

11))(1(

t

turPARTSWP

t

tmMPOPHQQHLKAY ur

urggg

m

mgggggggggg

LL

g denotes a rate of growth POP-M native populationm net migration rate

Explaining the gaps in GDP per capita across countries

Effect of labourproductivity

1) Average of the best 5 performing EU countries (Luxembourg, Ireland, Denmark, Netherlands and Austria)

2000 - 2005Percentage gap with respect to

EU-5 1) GDP per capita(GDP per hour worked)

Effect of labourresource utilisation

(Hours worked per capita)

Change in gap

-80 -60 -40 -20 0 20 40 60 80 100

Luxembourg

Ireland

Denmark

Netherlands

Austria

Belgium

United Kingdom

Sweden

Finland

Germany

France

EU-15

Euro area

Italy

EU-25

Spain

Cyprus

Greece

Slovenia

Czech Republic

Portugal

Malta

Hungary

Estonia

EU-10

Slovak Republic

Lithuania

Poland

Latvia

-80 -60 -40 -20 0 20 40 60 80 100 -80 -60 -40 -20 0 20 40 60 80 100 -10 -5 0 5 10 15 20

Czech Republic: Growth Czech Republic: Growth accountingaccounting

Gap with EU15 in level in 2005

-60 -40 -20 0 20 40

GDP per capita

Labour Productivity

Labour Resource Utilisation

Capital Deepening

Total Factor Productivity

Labour Quality (Education)

Share of Working age Population

55-64 Participation

Unemployment Rate

Average Hours Worked

Native Population

Net Migration

Youth Participation

25-54 Male Participation

25-54 Female Participation

Growth decomposition 2000-2005

-2 -1 0 1 2 3 4 5

GDP per capita

Labour Productivity

Labour Resource Utilisation

Capital Deepening

Total Factor Productivity

Labour Quality (Education)

Share of Working age Population

55-64 Participation

Unemployment Rate

Average Hours Worked

Native Population

Net Migration

Youth Participation

25-54 Male Participation

25-54 Female Participation


New features of the growth accounting

- very detailed decomposition- accounting for the quality of labour- contribution of migration

Caveats

- descriptive approach, does not inform about causality - results affected by assumptions of technical nature – e.g. Cobb-Douglas PF, no economies of scale, calibration of labour share (though widely accepted)- growth and its components can be affected by the business cycle- developments in each component might be difficult to interpret in practice

Step 2 – Making the link with policies

Need to link growth accounting with policy interventions and performance on indicators

need to draw on a wide body of economic research

The structure of the fiches

Definition and scope of the policy area Impact on growth components (theoretical mechanism

and transmission channels); direct and indirect Evidence and estimated elasticities in recent literature Possible spillovers and complementarities with other

policy areas Non-exhaustive list of relevant indicators

Step 2 – Making the link with policies

Labour market

Product market

Innovation and knowledge

Macroeconomy

Active labour market policies (training, job-search assistance, well-designed and targeted programmes

Openness to trade and investment

R&D, innovation policies and ICT

Long-term sustainability of public finances and welfare policies

Making work-pay: incentive to work through the interplay of tax and benefit system

Barriers to entrepreneurship and business environment

Education and life long learning

Stability oriented macroeconomic policies

Reforming labour taxation to stimulate labour demand

Competition-friendly policy framework

Relaxing job protection while combating labour market segmentation/dualisation

Efficient financial markets and access to finance

Working time organisation

Specific labour supply measures for women

Specific labour supply measures for older-workers

Improving wage bargaining and wage-setting policies

Immigration and integration policies

Labour mobility (geographical and sectoral)

Example: LS of older Example: LS of older workersworkers

Policy indicatorsImplicit tax on continued work (Net change in pension wealth if retiring at 65 instead of 62 -2004 (-)

Coverage of early retirement 2004 (-)

Life-long learning: Participation of the population aged 55-64 in education and training 2000-2006 (+)

Performance indicators Average exit age from the labour force 2001-2005 (+)

Employment rate of older workers aged 55 to 64 - Women (%) 1992-2006 (+)

Employment rate of older workers aged 55 to 64 - Men (%) 1992-2006 (+)

Older-worker participation

Specific labour supply measures for older-workers)

Policy and performance indicatorsGDP components

Policy area

Step 3: Scoring systemStep 3: Scoring system

Score = (Indicator-EU15 average)/Standard deviation *10

• trimming the score (3 stdev.) so as to avoid giving trimming the score (3 stdev.) so as to avoid giving too much weight to outlierstoo much weight to outliers

• not rounding the final value in the maquette but not rounding the final value in the maquette but presenting it without decimalpresenting it without decimal

• reporting the EU15 average and the stdev. as well reporting the EU15 average and the stdev. as well as the distance to alternative benchmarks (EU27, five as the distance to alternative benchmarks (EU27, five best values, EU5, the Lisbon target)best values, EU5, the Lisbon target)


++++

++

00

00

- -- -

--

EU15 Weighed average EU15 Weighed average E(X)E(X)

E(X)+0.4 E(X)+0.4 (X)(X)

Average+one stdev. Average+one stdev. EE(X)+ (X)+ (X)(X)

E(X)- 0.4 E(X)- 0.4 (X)(X)

E(X) - E(X) - (X)(X)

16%16%

19%19%

31%31%

19%19%

16%16%

=2=2

=1=1

=0=0

=-2=-2

=-1=-1

Under Under normal normal distribution distribution EU15EU15

Table 1: Application of the new scoring system to step 1 (level and change)f GDP accounting level assessment vis-à-vis EU15 Capital Total Initial Share of 55-64 Unemploy Average Native Net Youth 25-54 25-54

GDP per capita Labour Labour Deepening Factor education Working age Participation ment Hours Population Migration Participation Male Female

productivity utilisation Productivity (Labour quality) Population Rate Worked (fertility rate) (share of Participation Participation

Score 0.00 foreign pop)

BE 8 21 -16 2 28 -12 -10 -14 -5 -6 2 9 -12 -3 2BG -30 -30 28 -30 -30 -6 21 -9 -4 30 -30 -27 -18 -30 3CZ -28 -30 30 -30 -21 -1 30 0 8 22 -6 -20 -12 20 10DK 13 3 12 -15 13 -5 -4 16 8 -3 8 -7 18 -7 15DE 1 5 -6 8 -5 12 4 5 -3 -12 -5 11 2 10 6EE -30 -30 28 -30 -25 3 13 12 -3 28 -30 30 -12 -29 12IE 23 14 7 4 18 -10 15 6 9 2 10 -1 5 -4 -9GR -21 -22 8 3 -16 -10 8 -4 -7 30 -30 2 -13 18 -11ES -8 -9 3 -10 1 -8 19 -1 -3 4 -5 6 0 -1 -10FR 0 12 -15 10 14 -10 -14 -7 -6 -4 12 0 -8 9 8IT -5 -7 5 2 1 -12 -3 -15 0 14 -6 -10 -13 -11 -19CY -19 -24 16 -30 -1 -9 17 5 8 7 -3 30 -5 25 2LV -30 -30 18 -30 -25 -8 21 7 -4 20 -6 30 -9 -27 11LT -30 -30 13 -30 -19 -7 12 6 -2 19 -7 -24 -20 -21 17LU 30 30 30 -3 30 1 4 -15 30 -4 5 30 -17 26 -5HU -30 -30 7 -30 -22 8 19 -13 1 27 -6 -22 -19 -30 -5MT -30 -22 -10 -29 -2 -14 29 -15 2 9 6 -15 6 6 -30NL 13 13 -3 8 8 0 8 1 9 -15 6 -9 21 11 6AT 11 -2 18 1 -8 10 14 -14 8 3 -3 14 10 3 7PL -30 -30 2 -30 -24 3 30 -17 -28 26 -30 -20 -11 -30 2PT -30 -30 13 -30 -15 -7 6 7 0 6 -3 -18 -4 -1 10RO -30 -30 15 -30 -30 2 27 -7 -2 30 -5 -28 -15 -30 -7SI -22 -24 11 -30 -13 3 30 -15 3 8 -7 -19 -7 -12 18SK -30 -30 -7 -30 -21 4 30 -12 -30 9 -7 -27 -10 11 11FI 4 -3 10 -12 13 -15 0 10 -2 7 8 -19 3 -19 16SE 5 0 6 4 3 -7 -12 26 0 -1 7 -5 2 -7 17UK 7 -2 11 -13 9 -7 -5 11 9 3 7 -5 13 -12 3Per capita GDP gapEU15 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0std-dev EU15 11.5 13.6 9.3 5.9 15.3 9.4 1.7 21.1 3.9 9.0 0.4 2.2 23.2 1.2 8.4EU27 -11.4 -13.3 2.2 -5.6 -5.9 -2.4 1.0 -4.0 -0.9 4.6 -0.2 -0.9 -7.7 -1.0 0.3Five Best EU15 18.9 18.7 11.4 5.1 24.5 8.7 2.4 26.9 3.9 10.1 0.3 2.4 32.3 1.2 8.2Euro area 1.8 1.3 0.5 0.4 0.4 0.5 -0.1 0.4 0.0 -0.6 0.1 0.5 0.0 0.0 0.3EU5 18.9 12.3 6.1 1.3 11.0 0.5 1.4 0.0 4.9 -5.9 0.2 0.3 34.8 0.6 4.4

Gap EU15-EU27 11.4 13.3 -2.2 5.6 5.9 2.4 -1.0 4.0 0.9 -4.6 0.2 0.9 7.7 1.0 -0.3Gap EU15-five best -18.9 -18.7 -11.4 -5.1 -24.5 -8.7 -2.4 -26.9 -3.9 -10.1 -0.3 -2.4 -32.3 -1.2 -8.2Gap EU15-EU5 -18.9 -12.3 -6.1 -1.3 -11.0 -0.5 -1.4 0.0 -4.9 5.9 -0.2 -0.3 -34.8 -0.6 -4.4


GDP components Old scoring New scoringLabour utilisation 2 30

Share of working age population 2 30Native population -1 -6

Net migration -2 -20Unemployment rate 1 8

Average hours worked 2 22Youth participation -2 -12

25-54 male participation 2 2025-54 female participation 1 10

55-64 participation 0 0Labour productivity -2 -30

Capital deepening -2 -30Total factor productivity -2 -21

Labour quality (educational attainment) 0 -1GDP per capita -2 -28

Improvements to the Improvements to the methodologymethodology

Robustness checks Correlations between indicators Taking account of cyclicality Extending growth accounting to include

sectoral decomposition or environtal dimension

Aggregate score based on a narrower set of indicators

Extending growth accounting to include forecast

Presentational issues

Next stepsNext steps

• Questionnaire to MSs to seek Questionnaire to MSs to seek clarification on:clarification on:

• new scoring schemenew scoring scheme• cyclical adjustmentscyclical adjustments• robustness checksrobustness checks• presentation of results etc.presentation of results etc.

• « Final » proposal to be presented in « Final » proposal to be presented in January 2008January 2008

• Methodology to be applied by May Methodology to be applied by May 20082008

Mechanical application: Mechanical application: overall resultsoverall results

Policy areas -- Aggregate scores for CZ Level ChangeLabour marketActive labour market policies 0 0Making work-pay: incentive to work through the interplay of tax and benefit system 0 1Reforming labour taxation to stimulate labour demand -1 -1Relaxing job protection while combating labour market segmentation/dualisation 0 -1Working time organisation 1 0Specific labour supply measures for women -1 0Specific labour supply measures for older-workers) 0 1Improving wage bargaining and wage-setting policies -1 1Immigration and integration policies 1 2Labour mobility (geographical and sectoral) 0 0Product and capital market regulationsOpenness to trade and investment 0 1Barriers to entrepreneurship and business environment -1 -1Competition-friendly policy framework 0 -1Efficient financial markets and access to finance 0 0Innovation and knowledgeR&D, innovation policies and ICT -1 1Education and life long learning 0 0MacroeconomyLong-term sustainability of public finances and welfare policies 0 0Stability oriented macroeconomic policies 0 0

Example: Making work Example: Making work paypay

Making work-pay: incentive to work through the interplay of tax and benefit system Level Growth

Unemployment benefit duration, months (Danish study-median of the min-max range) 2Average unemployment benefit duration (years) (OECD)Job availability requirement index (Danish study) 2Unemployment trap (low wage-earner): Marginal effective tax rate for an unemployed person (67% AW, single person) 2 2Unemployment trap (average wage-earner): Marginal effective tax rate for an unemployed person (100% AW, single person) 1 2Inactivity trap (low wage-earner): Marginal effective tax rate when moving from social assistance to work (67% AW, single person) 0 2Inactivity trap (average wage-earner): Marginal effective tax rate when moving from social assistance to work (100% AW, single person) 0 2Net Replacement Rates for unemployed persons (67% AW, single person) 2 1Net Initial Replacement Rates for unemployed persons (100% AW, single person) 1 1Average unemployment benefit replacement rate (%) (OECD)Unemployment rate - Pre-primary, primary and lower secondary education - levels 0-2 (ISCED 1997) (%) -2 -2Employment rate - Pre-primary, primary and lower secondary education - levels 0-2 (ISCED 1997) (LFS) (%) -2 -2Long-term unemployment rate -1 1Aggregate score on level 0 1Number of individual indicators with negative performance 3 2

Example: Female and Example: Female and older worker LSolder worker LS

Specific labour supply measures for women Level Growth

Childcare (0-2 years) for less than 30 hours -2Childcare (0-2 years) for 30 hours and more -2Childcare (3 years to compulsory school age) for less than 30 hours -1Childcare (3 years to compulsory school age) for 30 hours and more 0Childcare (compulsory school age up to 12 years) for less than 30 hours 0Childcare (compulsory school age up to 12 years) for 30 hours and more 0Number of months of maternity/paternity/parental leave with benefits replacing at least 2/3 of salary 1Inactivity trap for the second member of a couple (half-time at 67% APW) -2 -2Low-wage trap for second-earner income (first earner: 67% APW; second earner: 33% to 67%) 0 2Life-long learning. For women -1 -2Female employment rate (%) 0 -1Gender pay gap in unadjusted form -1 1gender segregation in occupations -2 2Gender segregation in sectors -1 2Unemployment gender gap -1 -1Employment impact of parenthood -2 2Employment gender gap in full-time equivalent 1 0Female part-time workers in % of total female employment -2 -2Female employees in part-time who could not find stardard employment as % of total employees 2Aggregate score on level -1 0Number of individual indicators with negative performance 11 5

Specific labour supply measures for older-workers Level Growth

Implicit tax on continued work 1Coverage of early retirement 1Life-long learning: Participation of the population aged 55-64 in education and training -1 -2Average exit age from the labour force- Women Average exit age from the labour force- total 0 2Employment rate of older workers aged 55 to 64- Men 1 2Employment rate of older workers aged 55 to 64- Women -1 1Aggregate score on level 0 1Number of individual indicators with negative performance 2 1

Example: Business Example: Business environmentenvironment

Barriers to entrepreneurship and business environment Level Growth

Business investment - Gross fixed capital formation by the private sector as a percentage of GDP (STRIND er070)) (+) 1 -2Business demography - Birth rate - Number of real enterprise births of year n, divided by the population of active enterprises of year n (STRIND er081) (+)0Business demography - Survival rate - The percentage of all real enterprise births of year n which are still active in year n+2 (STRIND er082) (+)-2Administrative burdens on startups (OECD) (-) -1Regulatory and administrative opacity (OECD) (-) -2Starting a Business - time, procedure, cost, capital requirement, average rank (World bank doing business) (-) -1 2Dealing with Licenses - procedures, time, cost, average rank (World bank doing business) (-) -2 0Registering Property - procedures, time, cost, average rank (World bank doing business) (-) 0 -1Paying Taxes average rank (World bank doing business) (-) -1 -1Enforcing Contracts - procedures, time, cost, average rank (World bank doing business) (-) 0 -1Closing a Business time, cost, recovery rate average rank (World bank doing business) (-) -2 -1Propensity towards entrepreneurship - Total population considering self-employment (in %) (European Commission, Flash Eurobarometer) (+)-2Aggregate score on level -1 -1Number of individual indicators with negative performance 8 5

Example: R&D, Example: R&D, innovation and ICTinnovation and ICT

R&D, innovation policies and ICT Level Growth

Summary Innovation Index 2006 -2 2High-tech exports - Exports of high technology products as a share of total exports -1Gross domestic expenditure on R&D (GERD) - Percentage of GDP -1 2Gross domestic expenditure on R&D (GERD) by source of funds - industry - Percentage of GDP -1 2Gross domestic expenditure on R&D (GERD) by source of funds - government - Percentage of GDP -1 2Gross domestic expenditure on R&D (GERD) by source of funds - abroad - Percentage of GDP -2 2Science and technology graduates - total - Tertiary graduates in science and technology per 1000 of population aged 20-29 -2Patent applications to the European Patent Office (EPO) - Number of applications per million inhabitants -2Patents granded by the United States Patent and Trademark Office (USPTO) - Number of patents per million inhabitantsVenture capital investments - early stage - Percentage of GDP -1Venture capital investments - expansion & replacement - Percentage of GDP -2 2Level of Internet access - households - Percentage of households who have Internet access at home -2 2ICT expenditure - IT - Expenditure on Information Technology as a percentage of GDP 0 2ICT expenditure - Telecommunications - Expenditure on Telecommunications Technology as a percentage of GDP 1 -1E-commerce via Internet - Percentage of enterprises' total turnover from e-commerce via Internet -1 0E-government on-line availability - Percentage of online availability of 20 basic public services -2E-government usage by individuals - total - Percentage of individuals aged 16 to 74 using the Internet for interaction with public authorities -1 2E-government usage by enterprises - Percentage of enterprises which use the Internet for interaction with public authorities 1 0Broadband penetration rate - Number of broadband lines subscribed in percentage of the population -2 2Aggregate score on level -1 1Number of individual indicators with negative performance 15 1

Reform area Modelling approach Coverage

Labour and product markets

QUEST IIeconometric estimates

EU1513 OECD countries[1]

Effective retirement age

ECFIN ageing model EU15 aggregate

Internal Market QUEST II EU25 aggregate


QUEST IIIWorldScan

EU15 aggregateEU25

Increased R&D spending

QUEST IIIWorldScan

EU15 aggregateEU25

[1] Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom.

Method III - Modelling the impact of structural refroms

Simulations included in 2007 APR

Reform area Input into models Results

Labour and product markets

Changes in policy variables (e.g. tax wedge, taxes, unemployment benefits and regulation of PMs) since 1995.

2% increase in EU15 GDP and 1.4 p.p. reduction in structural unemployment

Effective retirement age

One year increase in retirement age

1.5% increase in EU15 GDP by 2025 and 2.5% by 2050

Enlarged Internal Market

Gains from greater integration and enlargement (e.g. higher competition and more trade) over 1992-2006

2.2 increase in EU25 GDP and 1.4 increase in employment


25% reduction in administrative burden by 2010

1.3% increase in GDP by 2025

Increased R&D spending

Reaching national R&D expenditure targets by 2010

2.6 to 4.4% increase in EU25 GDP (25-30% due to spillovers)

Main results

Methodology to assess the progress in Lisbon strategy Smilovice, 5 th December 2007

Documents

Transcript of Methodology to assess the progress in Lisbon strategy Smilovice, 5 th December 2007