TUAC NOTE ON "IMPLEMENTING THE
STRATEGY: MEMBER COUNTRIES EXPERIENCE"
Economic Development Review Committee (EDRC) Report
to Ministers on "Lessons from the Review Process"
- The Jobs Strategy recommendations and the OECD Economic Country Surveys
are a central and very visible part of the OECD's overall Programme of Work. They should be assessed against the background of the OECD Secretary-General's
October 1996 paper on "The OECD: Challenges and Strategic Objectives".
TUAC agreed with the Secretary-General's central theme that the OECD's
mission must be to achieve a balance between economic development, social
progress and political stability against the background of the growing
pressures of globalisation. We also agreed that OECD countries face a breakdown
in this balance and the risk of a popular backlash, because too little
emphasis has been placed on social factors. We supported the view that
"all economic policies designed to foster economic growth must have
social policy objectives". Current developments in many OECD countries
are reinforcing these messages. However, TUAC's concern is that the current
interpretation of the Jobs Strategy will worsen not improve the social climate.
- In April 1996 TUAC expressed its concerns(1) at the direction
of the follow-up to the OECD Jobs Study. These were that :
These concerns were based, in part, on the written reactions of TUAC
affiliates to the Country Reviews which had then been published as part
of the Jobs Study follow-up. A fuller set of written comments is attached
as an annex to present TUAC Note. In general these concerns have been repeated
in the comments on the subsequent reviews. They therefore remain the essence
of what TUAC would draw as the lesson from the Country Level experience
of the OECD Jobs Strategy.
It is significant that the EDRC paper "Implementing the OECD Jobs
Strategy: Member Countries Experience" does raise some of TUAC's concerns
in its treatment of the "overarching themes" arising from experience
with the Country Reviews:- the relationship between equity and efficiency;
social cohesion; consensus and the reform process; interaction between
structural policy; and the role of macroeconomic policy. The social concerns
are raised as reasons for the strategy not being implemented more extensively.
However, these social concerns are subsequently dismissed as inconsequential.
The EDRC paper's message is to push ahead with a strategic approach to
deregulate labour markets.
TUAC's view is that the OECD Ministerial Council should reassess the
implementation of the OECD Jobs Strategy. It should not be a policy "set
in stone" nor a blue-print for labour market deregulation against
which countries' progress is measured. Rather it should be an evolving,
broad-based strategy where the contrasting approaches of different countries
can be used to test and evaluate the relevance of the strategy and to change
and qualify it. The Social Partners should also be brought fully into the
review process. The closed and secretive nature of the EDRC process looks
increasingly out of place in an OECD which needs urgently to be seen as
more relevant to all elements of civil society.
This note briefly comments on the "overarching themes" raised
in the EDRC paper, before making some procedural suggestions.
|although the original Jobs Study was conceived as a "broad programme
of action" involving a "balanced mix of policies" the country
specific recommendations focused excessively on recommendations to deregulate
the labour market and weaken trade unions ;
|the social cost of this deregulation in terms of widening income inequality
and growing poverty was devastating whilst the gains in terms of better
employment performance were questionable ;
|many of the labour market recommendations involved trade-offs between
long and short term effects, static and dynamic efficiency, resource allocation
and innovation goals as well as economic and social goals. These were recognised
in the Jobs Study, but had become largely absent from the follow-up. Moreover
the exact nature of these trade-offs were likely to vary according to national
circumstances and differing institutional structures, yet rather than using
national experiences to enrich the strategy the country specific recommendations
appeared to present a "one size fits all" solution ;
|in endorsing the Jobs Study the 1994 Ministerial Council called for
"the implementation of the employment strategy, in cooperation with
the Social Partners" yet the country specific recommendations had
at that point failed to promote consensus building at a national level
and at OECD level there was little opportunity to get a trade union voice
heard in the "closed" EDRC process.
"Overarching Themes" from the Jobs Study follow-up :
The Role of Macroeconomic Stabilisation Policy
- The basic lesson that should be drawn from Europe's unsatisfactory
employment creation record is that given the rise in European productivity
over the last fifteen years European countries have collectively failed
to implement growth-orientated policies. The annexed chart shows that employment
creation in Europe has been strongly related to growth performance over
time. European authorities have not lived up to the Jobs Study recommendation
that "macroeconomic policy should focus on assisting recovery through
faster non-inflationary growth of domestic demand where there is still
substantial economic slack"(2). They have repeatedly, frequently
with OECD encouragement, erred on the side of monetary and fiscal restriction.
This risk is now present in Europe through the inflation fixation of central
banks and financial markets, and through the risks of concerted pro-cyclical
deflation as a result of public expenditure cuts associated with the EMU
- This situation must be contrasted with the policy stance of the United
States authorities of "keeping growth going" and "testing
the water" for inflationary bottlenecks to appear. Such an approach
is more reliable than a dependence on statistically abstract notions of
NAIRU's and NAWRU's constructed on data from periods of prevalent inflationary
as opposed to disinflationary expectations. It is significant that the
Chairman of the U.S. Federal Reserve Bank(3) has said that NAIRU's
"are so unstable when tried to apply to the real world that I am dubious
about their practical applicability".
- The lesson that Ministers must draw from the recent experience of economic
growth in the OECD, is the need for European Central Banks to lower real
interest rates in the current climate: as the EDRC paper points out "monetary
policy is given the double task of bearing down on cyclical unemployment
while maintaining effective price stability" (§ 195).
Interaction between Structural Policies
- The thrust of the EDRC paper's argument is that the main problem with
the implementation of the Jobs Study lies in Continental Europe where the
main focus is for "measures to increase labour and product market
flexibility" (§ 21). Later (§ 181) a synergy
is developed between:- measures to widen wage inequality; the weakening
of collective bargaining institutions and recommendations on the minimum
wage; reducing the generosity of unemployment and other social transfers;
a significant weakening of employment protection legislation (EPL); and
increasing competition in product markets to put pressure on wage bargaining.
- The strategy in the Country Surveys remains excessively focused on
these sets of recommendations. This is despite the fact that there is strikingly
little empirical evidence of the effectiveness of these approaches. The
EDRC paper itself points out that there is little reflection of changes
in eligibility requirements yet in unemployment rates (§ 56).
Even where these approaches get people off unemployment registers, it may
push a significant number of them out of the labour force (as in the UK).
The 1996 OECD Employment Outlook presented an extensive analysis of earnings
inequality and low-paid employment but found no evidence that a higher
incidence of low-paid employment yielded a better employment or unemployment
performance, and concluded that "factors other than relative wages,
such as the overall level of aggregate demand or the amount of training
received, may be more important for determining labour-market outcomes
of these groups."(4). The EDRC paper recognises that "it
is still controversial if, and to what extent, EPL has contributed to the
increase in unemployment in Member countries" (§ 75).
- The EDRC strategy, therefore, is about more labour market deregulation,
even when in reality the effectiveness of what is being proposed is not
known. What is known, however, is the social cost of removing some of the
employment and income protection for some of the most vulnerable groups
in OECD societies.
- The confidence with which the EDRC makes recommendations in the above
areas can be contrasted with the generally critical treatment of the use
of Active Labour Market Programmes. The EDRC concludes that in view of
"the disappointing experience with some ALMPs in the past, recommendations
in this area have not been for a general expansion of active measures" (§ 113).
The treatment of education and training issues looks similarly imbalanced.
It is surprising, when the large majority of the original OECD Country
Notes on the Jobs Study identified skills as a key issue that the EDRC
should note "OECD recommendations to strengthen basic skill acquisition
have been confined to a few countries" (§ 131).
- A very different view of the policy options emanates from work being
carried out in other parts of the OECD with regard to:- technological change;
the nature of "flexible organisations"; skill acquisition and
education policy; and corporate governance issues. The changing strategies
of firms in the global market are seen to be a key factor. One interpretation
of this work is that firms in the OECD area are becoming polarised. On
the one hand there are those trapped in Taylorist forms of production having
to compete in an ever tougher global market with low wage competition from
nonOECD countries. Increasingly it is not the firms themselves which
have to compete but the workers in different countries bidding for their
jobs with the same employers. On the other hand there are firms who have
shifted to new forms of work organisation in which a high premium is given
to the flow of knowledge and innovation. These "high skill - high
trust" organisations compete on the basis of a different and clearly
more acceptable strategy than their Taylorist rivals.
- The policy implications of this are that governments can move their
economies onto higher growth paths by encouraging technological diffusion,
innovation, "good practice" management techniques and the development
of appropriate infrastructures for the "information society".
"Learning societies" and knowledge-based firms are the key to
success. In this scenario labour market deregulation is not a central issue.
Internal functional flexibility of workers in line with changing work organisation
is much more important to firms. Flexibility to "hire and fire"
looks at best irrelevant and at worst could encourage the low wage/low
skill route to competitiveness. This "dynamic" feature of changing
competitive strategies in OECD countries is not reflected in EDRC Reviews.
- Overall, therefore, TUAC would question how balanced is the EDRC's
treatment of labour market issues, how effective are the measures proposed,
and how desirable they are in terms of their social impact. It seems to
reflect the Press reports of the Lille G7 Jobs Conference which quoted
an OECD economist as saying: "the less regulations there are in the
labour market, the more efficiently they will operate, and the more people
will have jobs"(5).
The relationship between equity and efficiency
- The EDRC paper argues that " A key reason for the slow and sporadic
implementation of the OECD Jobs Strategy is the perception that undertaking
reform involves trade-offs with policy objectives concerning equity and
social cohesion". This is not just a perception. The deregulation
of labour markets has a major cost in terms of growing poverty, inequality
and social dislocation. Weakening the collective bargaining system, reducing
minimum wages and reducing unemployment benefits all work to lower relative
and in some cases absolute earnings in the bottom half of the income distribution.
It is therefore not surprising that the 1995 OECD Study on income distribution
showed that the United States (with deregulated labour markets) had the
highest degree of income inequality and the United Kingdom, which has pursued
labour market deregulation as a major plank of government policy had the
"biggest increase in income gap between the rich and poor"(6).
The 1996 Employment Outlook's analysis of earnings inequality reinforced
- Rising poverty and inequality is destroying social cohesion and does
not provide an acceptable route for OECD countries either socially or economically.
Yet the treatment of this in the Country Surveys remains dismissive. The
EDRC paper says that "lower relative incomes at the bottom of the
scale may raise incentives for investment in human capital by groups who
would not otherwise have made little such investment, which should reduce
income dispersion over the longer run" (§ 9). Again this
assertion is not supported by the evidence in the 1996 Employment Outlook,
which found that "increase in earnings dispersion may not be offset
in the longer run by greater relative upward mobility among those with
- A year ago TUAC argued that the EDRC reports should include an "equity
audit" of each measure which is proposed and that equity and social
issues must be treated far more effectively. This recommendation seems
even more valid today.
Social Cohesion and consensus
- TUAC has criticised the absence from most Surveys, of recommendations
on how to reach agreement with the Social Partners on desirable changes.
The EDRC paper does begin to address these issues. It notes (§ 175)
that a consensus based approach has worked in Austria, the Nordic countries
and the Netherlands. To this list could be added Ireland and Italy. Initial
attempts by the unions in Germany to propose a "pact for jobs"
were rebuffed leading to major social confrontations in Germany. The report
notes that in a number of "English-speaking countries" "labour
market organisations have often been seen as special interest groups"
and instead "governments have emphasised the popular mandate of existing
governments and the possibility for voters to express dis-satisfaction
at the next election" (§ 175). In several such countries
voters seem to be doing this emphatically, and TUAC would argue that it
is clearly necessary to now integrate a recommendation in the Country Reviews
promoting negotiations with the Social Partners.
The Jobs Strategy Procedure
- TUAC recognises the willingness of the current EDRC Chair to engage
in a dialogue with trade unions as shown in the informal consultations
which have taken place between TUAC and the EDRC Bureau since April 1996.
The fact that the "overarching themes" in the EDRC paper coincide
to a significant extent with the concerns raised by TUAC a year ago confirms
the need to develop an intensive involvement of trade unions in the Jobs
- TUAC's concern at the balance of the recommendations which appear in
the EDRC paper confirm the need to rethink how the OECD delivers country
specific policy advice and surveillance against a background of increased
horizontal work. TUAC has made suggestions on this in consultations with
the OECD Council(8)). As argued in this Note, rather than structural
policy chapters appearing as national recommendations for implementing
a "blue-print"(9), they need to be tailor-made to
specific country circumstances, and draw upon the knowledge of the specialist
OECD Committees. We have suggested the creation of a broad-based OECD Committee,
served by a general coordination unit of country desks not attached to
any particular department and geared towards multidisciplinary work.
- With regard to the Jobs Study follow-up, trade unions should be invited
to give comments on recommendations relating to employment before, rather
than after, the Country Reviews are published. The social partners should
be invited to take part in at least part of the review meetings, initially
for a trial group of countries. An opportunity to express comments along
these lines could increase the commitment of the social partners to the
OECD's recommendations when reviews are undertaken, and moreover raise
both the credibility and acceptability of the Jobs Strategy.
(1) TUAC Informal Note on EDRC Follow-up to
the OECD Jobs Study, April 1996
(2) The OECD Jobs Study, 1994, page 44.
(3) Alan Greenspan, U.S. Senate Hearings, January
(4) OECD Employment Outlook, July 1996, page
(5) Associated Press, "G-7 Fight Unemployment",
31 March, 1996.
(6) OECD, Income Distribution
in OECD Countries - Press Release, 19 October, 1995.
(7) OECD Employment Outlook 1996 (page vii).
(8) TUAC Discussion Paper to the OECD Liaison
Committee with Non-Governmental Organisations, November 1996.
(9) OECD Economic Outlook, December 1996, page