Decent work as a source of Decent work as a source of productivity - - PowerPoint PPT Presentation

Decent work as a source of Decent work as a source of productivity in Europe productivity in Europe

Finland’s EU Presidency Finland’s EU Presidency Employment Conference: Towards Higher Employment Conference: Towards Higher Productivity and Better Employment Productivity and Better Employment Dipoli, Espoo, 16 Dipoli, Espoo, 16-17 October 2006 17 October 2006

José Manuel Salazar José Manuel Salazar-

• Xirinachs

Xirinachs Executive Director, Employment Sector Executive Director, Employment Sector ILO ILO

Productivity isn’t everything, but in the long Productivity isn’t everything, but in the long run it is almost everything. A country’s run it is almost everything. A country’s ability to improve its standard of living over ability to improve its standard of living over time depends almost entirely on its ability time depends almost entirely on its ability time depends almost entirely on its ability time depends almost entirely on its ability to raise its output per worker… to raise its output per worker… (P. Krugman, 1990) (P. Krugman, 1990)

What determines or affects productivity?

Internal conditions

• Good management &

entrepreneurship

• Good technologies & equipment
• Access to resources

Healthy and skilled workers

External and structural conditions

• Growing markets, effective demand
• Sectoral profile of the economy and

flexibility for resource redeployment

• Competition conditions
• A conducive enabling environment:
• Respect for property rights
• Clear, stable, predictable rules

A well governed economy

• Healthy and skilled workers
• Finance (credit, prosperous

investors, venture capital)

• Physical and natural: energy,

land, infrastructure

• A well governed economy
• Costs for doing business
• Quality of infrastructure
• Quality of Value chains-related

industries and business services

Endogenous factors

• f productivity

Exogenous factors

• f productivity

Systemic competitiveness

Topics of Discussion Topics of Discussion

I. I.

The Productivity and Employment Challenges The Productivity and Employment Challenges in Europe in Europe

II. II.

Labour market dimension of productivity: the Labour market dimension of productivity: the relationship between employment stability, relationship between employment stability, relationship between employment stability, relationship between employment stability, flexibility and security. flexibility and security.

III. III.

Balancing and coordinating policies for good Balancing and coordinating policies for good labour market and productivity performance. labour market and productivity performance.

• I. The Productivity and
• I. The Productivity and

Employment Challenges Employment Challenges

.

Productivity is a central part of Productivity is a central part of growth and employment strategies growth and employment strategies

• New Lisbon strategy, the EU has an ambitious agenda

New Lisbon strategy, the EU has an ambitious agenda for growth and employment. for growth and employment.

• The ILO has, with the decent work agenda, also a broad

The ILO has, with the decent work agenda, also a broad strategy for good jobs and productive employment. strategy for good jobs and productive employment.

• Both strategies also include an employment strategy:

Both strategies also include an employment strategy:

• Both strategies also include an employment strategy:

Both strategies also include an employment strategy:

• European Employment Strategy

European Employment Strategy

• Global Employment Agenda

Global Employment Agenda

• Productivity is an aim for all these strategies and while

Productivity is an aim for all these strategies and while there might be short term trade there might be short term trade-offs between the

• ffs between the

productivity and the employment goal, experience shows productivity and the employment goal, experience shows both productivity and job gains over the longer term. both productivity and job gains over the longer term.

GDP per hour and per worker relative to the US, 2004 (Source: ILO, KILM) The US – EU15 Productivity Gap

A u s t r i a D e n m a r k N e t h e r l a n d s I r e l a n d U n i t e d S t a t e s B e l g i u m L u x e m b o u r g F r a n c e N o r w a y

0 . 0 0 0 . 2 0 0 . 4 0 0 . 6 0 0 . 8 0 1 . 0 0 1 . 2 0

N e w Z e a l a n d S p a i n I c e l a n d J a p a n S w i t z e r l a n d C a n a d a A u s t r a l i a U n i t e d K i n g d o m I t a l y F i n l a n d S w e d e n G e r m a n y

P e r c e n t a g e o f U S l e v e l G D P p e r h o u r ( 1 9 9 0 U S $ ) G D P p e r p e r s o n e m p l o y e d ( 1 9 9 0 U S $ )

0.3% 0.4% 0.5% 0.6%

Manufacturing Private Services Rest of Economy

Contributions of the 56 Industries to Overall Labour Productivity Growth in the US + EU15 (1996-2000) (Source: ECFIN (2004), Annual Review )

But productivity gap only in certain sectors….

• 0.2%
• 0.1%

0.0% 0.1% 0.2%

Semiconductors Office Machinery Clothing Chemicals Rubber & Plastics Textiles Motor Vehicles Furniture Basic Metals Air & Spacecraft Pulp & Paper Metal Products Instruments Railroad Equipment Insulated Wire Ships & Boats Leather Telecom Equipment Mineral Products Oil & Nuclear Fuel Printing & Publishing Radio and TV Wood & Wood Products Electrical Machinery Mechanical Engineering Scientific Instruments Food, Drinks & Tobacco Wholesale Trade Retail Trade Real Estate Activities Aux.Financial Services Financial Services Communications Renting of Machinery Air Transport Insurance & Pensions Aux.Transport Activities Research & Development Land Transport Water Transport Legal & Advertising Computer Services Electricity, Gas & Water Other Business Activities Motor Sales & Repairs Construction Hotels & Restaurants Agriculture Public Admin & Defence Fishing Forestry Mining & Quarrying Social & Personal Services Health & Social Work Education

USA EU15

• II. The labour market
• II. The labour market

dimension of productivity dimension of productivity

Relationships between Relationships between employment stability employment stability-flexibility flexibility- security. security.

How does the labour market How does the labour market feature in the productivity debate? feature in the productivity debate?

• Common argument: “Europe trails behind US because

Common argument: “Europe trails behind US because its labour markets are more rigid, inhibiting productivity its labour markets are more rigid, inhibiting productivity- enhancing change…” enhancing change…”

• While it is true that US labour market flexibility is higher

While it is true that US labour market flexibility is higher (US average tenure = 6.9 years; EU15 = 10.7 years)… (US average tenure = 6.9 years; EU15 = 10.7 years)…

• It is not evident that this explains the sectoral productivity

It is not evident that this explains the sectoral productivity

• It is not evident that this explains the sectoral productivity

It is not evident that this explains the sectoral productivity gaps: gaps:

• Europe was more productive than the US before 1996, despite

Europe was more productive than the US before 1996, despite longer tenure. longer tenure.

• Europe has superior productivity than the US in

Europe has superior productivity than the US in countries/sectors with a high share of stable employment. countries/sectors with a high share of stable employment.

• Other arguments such as lower R&D spending, a higher share of

Other arguments such as lower R&D spending, a higher share of ICT ICT-intensive sectors, sectors less open to competition, are more intensive sectors, sectors less open to competition, are more convincing… convincing…

• Particularly since there is a positive productivity effect in stable

Particularly since there is a positive productivity effect in stable employment relationships, in particular when associated with employment relationships, in particular when associated with good workplace relations… good workplace relations…

Stability as a source of productivity Stability as a source of productivity

• High shares of short

High shares of short- tenure workers tenure workers associated with associated with negative negative

4-10 years of tenure

Productivity benefits of employment stability (tenure) in French private sector Productivity benefits of employment stability (tenure) in French private sector

negative negative productivity. productivity.

• <1 year =

<1 year = ↓ 0.02% ↓ 0.02%

• 1-4 years =

4 years =  0.05%  0.05%

• 4-10 years

10 years = =  0.36 0.36% %

Source: Kramarz & Roux, 1999. Source: Kramarz & Roux, 1999.

• 0.1

0.1 0.2 0.3 0.4 Productivity Growth 1-4 years of tenure Less than 1 year of tenure

In the aggregate, tenure is positively related In the aggregate, tenure is positively related with increased productivity…..up to a point with increased productivity…..up to a point

Tenure-productivity relationship

ductivity ros/Hour)

A 1% increase in average tenure increases labour productivity by 0.2% on A 1% increase in average tenure increases labour productivity by 0.2% on average, per sector. (ILO employment sector study, 13 EU countries, 1992 average, per sector. (ILO employment sector study, 13 EU countries, 1992- 2002: Auer/Berg/Coulibaly 2005). 2002: Auer/Berg/Coulibaly 2005).

Tenure (years) Produ (Euro

Why is employment stability Why is employment stability (tenure) beneficial for productivity? (tenure) beneficial for productivity?

• Microeconomic level: training

Microeconomic level: training

• Tenure allows employers to recoup the human capital (both

Tenure allows employers to recoup the human capital (both time and money) invested by firms in training their workers. time and money) invested by firms in training their workers. Lazear (1979). Lazear (1979).

• Experienced workers important for productivity (e.g.

Experienced workers important for productivity (e.g.

• Experienced workers important for productivity (e.g.

Experienced workers important for productivity (e.g. employers’ retention policies aimed at skilled workers) employers’ retention policies aimed at skilled workers)

• Macroeconomic level:

Macroeconomic level: maintenance of consumption maintenance of consumption

• Tenure and employment security allow for long term planning,

Tenure and employment security allow for long term planning, affecting consumption and saving/investment decisions. affecting consumption and saving/investment decisions.

• Insecurity has a negative effect on both consumption and

Insecurity has a negative effect on both consumption and investment and thus on economic growth. investment and thus on economic growth.

But mobility is also a source of But mobility is also a source of productivity productivity

Change in employment by sector and annual productivity growth, European Union countries (1980 - 2003)

Poland Ireland Hungary Estonia 5% 6% 7% wth

Source: ILO, World Employment Report 2004-05.

Sweden Spain Portugal Netherlands Luxembourg Latvia Italy Hungary Greece Germany France Finland Denmark Czech Republic Cyprus Belgium Austria

• 1%

0% 1% 2% 3% 4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Growth in share of employment in services Productivity growth

The need for balanced policies The need for balanced policies

• Therefore, a sound and sustainable

Therefore, a sound and sustainable productivity record requires a balancing of productivity record requires a balancing of these two dimensions rather than a race these two dimensions rather than a race for flexibility (or stability) for flexibility (or stability)

• How to achieve such a delicate balance?

How to achieve such a delicate balance? Important both for the Lisbon as well as Important both for the Lisbon as well as the decent work agenda as both seek to the decent work agenda as both seek to combine productivity growth with growth in combine productivity growth with growth in employment and decent work. employment and decent work.

III.

• III. Looking forward:

Looking forward: Policies for good labour market and Policies for good labour market and productivity performance: productivity performance:

1. 1.

Good workplace practices Good workplace practices

2. 2.

Education and training Education and training

3. 3.

Labour market policies Labour market policies

4. 4.

New balance between social policy and New balance between social policy and employment policies employment policies

5. 5.

Good labour market governance through Good labour market governance through social dialogue social dialogue

• 1. Good workplace practices:
• 1. Good workplace practices:

Fostering good labour Fostering good labour-management relations management relations

• Company success rests on quality management

Company success rests on quality management. There is a solid . There is a solid link between how well managers adopt good practices and how well link between how well managers adopt good practices and how well a company performs (McKinsey & LSE, 2005). a company performs (McKinsey & LSE, 2005).

• A trusting relationships with employees improves productivity and

A trusting relationships with employees improves productivity and profitability of an enterprise profitability of an enterprise. A positive workplace raises productivity . A positive workplace raises productivity levels ( levels (Tzafrir Tzafrir , 2005). , 2005).

• There is a

There is a clear and positive link between better working conditions clear and positive link between better working conditions and business success and business success. Companies listed on Fortune’s 100 Best . Companies listed on Fortune’s 100 Best companies to work for annually outperform their competitors companies to work for annually outperform their competitors (Fortune, 2005). (Fortune, 2005).

• Companies investing in their workforce can expect higher

Companies investing in their workforce can expect higher productivity and profitability productivity and profitability. Investing in training and development . Investing in training and development pays off for the company (Kochan, 2006). pays off for the company (Kochan, 2006).

Good workplace practices for high Good workplace practices for high performance and labour standards performance and labour standards

• Enterprises that achieved positive results usually applied a mix of

Enterprises that achieved positive results usually applied a mix of workplace practices in the fields of: workplace practices in the fields of:

• employee involvement

employee involvement

• compensation

compensation

• working time and work

working time and work-family balance policies family balance policies

• training and development

training and development

• employee well

employee well-being programmes being programmes

• employee well

employee well-being programmes being programmes

• equity and non

equity and non-discrimination discrimination

• ccupational safety and health
• ccupational safety and health
• job security

job security

• International Labour standards provide a foundation for developing

International Labour standards provide a foundation for developing these practices but they need to be embedded in the management these practices but they need to be embedded in the management practices within the enterprise. practices within the enterprise. Thus we increasingly see reference Thus we increasingly see reference to ILS in codes of practice and in company competitive strategies to ILS in codes of practice and in company competitive strategies.

• 2. Education and training
• 2. Education and training
• A key lesson from Finland: Education, skills and lifelong

A key lesson from Finland: Education, skills and lifelong learning must be at the center of an innovative, high learning must be at the center of an innovative, high productivity, economy productivity, economy

• It is very appropriate that these are central components

It is very appropriate that these are central components

• f the new European Integrated Guidelines for Growth
• f the new European Integrated Guidelines for Growth
• f the new European Integrated Guidelines for Growth
• f the new European Integrated Guidelines for Growth

and Employment (Guidelines 22 & 23) and the ILO’s and Employment (Guidelines 22 & 23) and the ILO’s Global Employment Agenda (Core element 6) Global Employment Agenda (Core element 6)

• Expand and improve investment in human capital

Expand and improve investment in human capital

• Adapt education and training systems to labour demands

Adapt education and training systems to labour demands (Increasing the share of university graduates in technology Increasing the share of university graduates in technology-

• riented fields)
• riented fields)

• 3. Active Labour Market Policies
• 3. Active Labour Market Policies

promote security promote security

France Sw eden Hungary Spain Portugal Japan United Kingdom United Staes Korea 45.0 50.0 55.0 Belgium Netherlands Denmark Ireland Germany Finland France Sw eden Italy Austrialia Sw itzerland Canada Greece Austria New Zealand Norw ay Czech Republica Hungary 25.0 30.0 35.0 40.0 45.0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Public expenditures (% GDP) in LMP Job insecurity (%)

The more an economy is integrated in the world The more an economy is integrated in the world market, the more ALMPs are needed market, the more ALMPs are needed

Belgium Finland France Germany Netherland Spain Sw eden 2.5 3 3.5 4 % of GDP) Austria Ireland Italy Norw ay Portugal Spain Sw eden United Kingdom Australia Canada Japan USA 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Integration Spending on LMP (%

Source: ILO, WER 2004-05.

• 4. New balance between social
• 4. New balance between social

policy and employment policies policy and employment policies

• In some countries, less than desirable labour

In some countries, less than desirable labour market performance was addressed via major market performance was addressed via major expenditures in social policies and safety nets. expenditures in social policies and safety nets.

• New view, included in the Lisbon agenda, is that

New view, included in the Lisbon agenda, is that social policies have tended to reduce Labour social policies have tended to reduce Labour social policies have tended to reduce Labour social policies have tended to reduce Labour supply and keep the labour force participation supply and keep the labour force participation rate too low. rate too low.

• A new balance is sought with the target of

A new balance is sought with the target of achieving a LFPR of 70%, partly by taking away achieving a LFPR of 70%, partly by taking away some of the adverse incentives to withdraw from some of the adverse incentives to withdraw from the labour force and activate people to work. the labour force and activate people to work.

5.

• 5. Good labour market governance and

Good labour market governance and productivity growth productivity growth

• Different models are possible for good productivity and

Different models are possible for good productivity and labour market performance. labour market performance.

• One important model is the one using used social

One important model is the one using used social dialogue intensively and had (or moved towards) a dialogue intensively and had (or moved towards) a specific form of flexi specific form of flexi-curity, such as Austria, Denmark, curity, such as Austria, Denmark, Ireland and the Netherlands Ireland and the Netherlands specific form of flexi specific form of flexi-curity, such as Austria, Denmark, curity, such as Austria, Denmark, Ireland and the Netherlands Ireland and the Netherlands

• These models included tripartite agreements on wage

These models included tripartite agreements on wage policies; labour market policies; training as well as policies; labour market policies; training as well as stability stability-oriented macroeconomic policy.

• riented macroeconomic policy.
• They managed to boost productivity and at the same

They managed to boost productivity and at the same time achieved good qualitative and quantitative labour time achieved good qualitative and quantitative labour market performance, as well as superior equity market performance, as well as superior equity

• utcomes. Good practice examples of policy balancing.
• utcomes. Good practice examples of policy balancing.

Conclusion Conclusion

• Social dialogue (cooperative and coordinated

Social dialogue (cooperative and coordinated relations between the social partners) allows for relations between the social partners) allows for better policy balances, economy better policy balances, economy-wide, with wide, with respect to productivity, employment and equity, respect to productivity, employment and equity, as well as at the workplace. as well as at the workplace.

• Policy balancing and coordination are important

Policy balancing and coordination are important for Decent Work Agenda, the new Lisbon for Decent Work Agenda, the new Lisbon Agenda and their employment strategies. Agenda and their employment strategies.

• But…for closing the productivity gap other

But…for closing the productivity gap other policies important: R&D, innovation, competition. policies important: R&D, innovation, competition.