OECD ‘Going for Growth’

1. Going for Growth – what is it about?

Going for Growth, published in 2005 for the first time, has become an annual periodical of the OECD, is intended to promote in particular structural reform policies in order to raise GDP per capita. Going for Growth claims to identify policy priorities for OECD member countries to enhance long-term growth. For each country, five policy priorities are being identified, mostly in the areas of labour and product markets and, to a lesser extent, in the domains of taxation policies and human capital formation.

Most of the previous issues of Going for Growth have used GDP per capita in the US as the key benchmark in order to identify priorities for structural reform policies. Subsequently governments of OECD member countries were urged to emulate the US model in order to improve the growth and employment performance of their countries vis-à-vis the US.

TUAC has argued that, for a number of reasons, it is inappropriate to use GDP per capita and the US economy as the benchmark:
First, comparing GDP per capita across countries to measure growth and productivity performance is inappropriate as it goes along with an unsustainable fixation on swelling the quantity of goods and services the economy produces. It fails to incorporate a broader concern for human welfare than just economic growth.

Second, it creates the misleading impression that Europe significantly lags behind the US in the global productivity league.
Third, it fails to take into account specific issues regarding the comparison of welfare between Europe and the US. Thus, the measured GDP per capita understates European welfare relative to the US quite substantially.

Despite the increasing critique regarding the appropriateness of the gross domestic product (GDP) per capita, Going for Growth continues to use this performance measure as benchmark respectively as indicator. However, minor change has occurred: Instead of GDP per capita in the US, the simple average of GDP per capita of the upper half of OECD members is now being used as benchmark.

TUAC has also taken issue with the view that labour market rigidity has been the major cause of unemployment in Europe and that greater labour market flexibility would be the solution. TUAC challenged in particular the orthodox view blaming unemployment and sluggish growth on labour market institutions like employment protection legislation (EPL), unemployment benefits, minimum wages, collective bargaining and trade unions.

Macro-econometric studies that have made use of quantitative indicators on labour market institutions in order to explain diverging patterns of national employment performance are anything but conclusive. They challenge the orthodoxy underlying Going for Growth. Unsurprisingly, a recent assessment of what has been learned with regard to the role of labour market institutions concluded that “it does not seem appropriate to make strong statements on the role of individual institutional variables and potential policy recommendations based solely on macro-econometric studies.

Moreover, TUAC has emphasized that there is strong evidence suggesting that a combined set of policies, including in particular active labour market policy, rather than labour market deregulation, underpins employment success. That is what has been ignored by Going for Growth right from the outset. Instead of pursuing an evidence-based approach to employment and labour market policy, Going for Growth has relied on a simplistic model of competitive labour markets.

Examples of structural reform policy recommendations by Going for Growth 2011

Countries like Belgium, Finland, Hungary, Luxembourg and the Netherlands are urged to reduce replacement rates respectively unemployment benefits over the unemployment spell to raise job-search incentives. France, Israel, Greece and Turkey are called upon to reduce the minimum cost of labour. Moreover, Greece is also urged to implement sub-minimum wages for youth and Slovenia is urged to abolish the national minimum wage.

Going for Growth 2011 also recommends that Belgium, Slovenia, South Africa and Spain should reform their wage bargaining systems, either by shifting from a centralised to a more decentralised system or by weakening respectively abolishing administrative extension of collective bargaining agreements.

France: Going for Growth 2011 calls upon the French government to reduce the labour tax wedge and the minimum cost of labour. The report asserts that in France high labour taxes undermine employment and the high relative minimum wage reduces job opportunities, especially for youth and low-skilled workers. Moreover, the report advocates that the government should “address labour market dualism by promoting a single, more flexible labour contract. Should this prove infeasible, broaden the definition of economic redundancy, simplify layoff procedures and reduce firms’ redeployment obligations.”

Germany: Going for Growth 2011 recommends that the government should “ease job protection for regular workers” by lowering the protection of regular work contracts, in particular by shortening the period before a dismissal notice can be given, reducing the notice period for workers with long tenure and reforming the regulation of compensation in case of dismissals for economic reasons.

Although GDP per capita in the Netherlands is at par with the average of the upper half of OECD countries, the report recommends easing employment protection legislation for regular contracts. Moreover, the report advocates that severance payments for older workers should be capped with the cap decreasing as they approach retirement. A particular reform of the Dutch Unemployment benefit system is also recommended: Unemployment benefit duration should be tempered and benefits should fall more rapidly throughout the unemployment spell.