Proceedings from the ECFIN Workshop "The budgetary implications of structural reforms" - Brussels, 2 December 2005

NAIRUs (in ascending order) and subsequent reform intensities (in descending order), those
euro-area countries where reforms were arguably most needed have not necessarily acted more
decisively, and vice versa (Figure 6, Panel A). Comparatively, and in line with the results of van
Poeck and Borghijs (2001), structural policies in other OECD countries seem to have been more
responsive to needs for reform (Figure 6, Panel B). Furthermore, reforms have been much more
modest in the areas of EPL and employment benefits⁷⁷ where political resistance is likely to be
greater, pointing to the role played by political economy considerations in shaping recent reform
patterns both in the EU and the rest of the OECD (Table 1).

In terms of dynamics, it is worth pointing out that the advent of EMU did not coincide
with an acceleration of labour market reforms, as shown by the lower average reform intensity in
EMU countries over 1999-2004 compared with 1994-98 (Figure 5, Panel B).⁷⁸ No such slowdown
was observed in non-EMU EU (Denmark, Sweden, United Kingdom),⁷⁹ and it was less
pronounced in other OECD countries. Nevertheless, one cannot rule out that the fairly high reform
intensity observed in EMU countries during the period 1994-98 was itself fostered by
expectational effects of EMU. The time span covered here is too short to explore this possibility.

77. Within each of these “difficult” areas, reform profiles also reflected hesitancy to confront insider interests. For example, most of the
countries that reformed their EPL did so by easing regulations on fixed-term employment contracts, while generally refraining from lowering
EPL for permanent workers (See Duval and Elmeskov, 2005). Likewise, countries which reformed their unemployment benefit systems often
tightened eligibility criteria, conditioned benefit receipt on participation in training and/or reduced associated work disincentives, but they
typically did not move far in terms of reducing benefit replacement rates and duration or enforcing stricter work-availability criteria. Taking the
two areas together, there is no obvious pattern differentiating EU countries from others when it comes to challenging or avoiding entrenched
insider positions.

78. This finding contrasts with the descriptive results obtained by Bertola and Boeri (2001) for a smaller range of policy fields (cash
transfers to people of working age -including unemployment benefits- and job protection only) over a shorter period (up to 1999).

79. Not too much should be made of this finding, however, since the non-EMU EU group consists of only three countries, among which the
top reformer (Denmark) has its currency tied to the euro (through the new exchange-rate mechanism, ERMII).

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