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

Strength versus comprehensiveness of reforms

Both theoretical and empirical evidence suggests that policy interactions can be important
and that comprehensive reform packages tend to be more effective than “piece-meal” reforms in
improving labour market outcomes.⁸⁰ Figure 7 classifies OECD countries according to the breadth
and depth of their reforms, in what may be regarded as a rough decomposition of the overall
reform intensity indicator along the two dimensions.⁸¹ The breadth of reforms in each country is
approximated here by the standard deviation of reform intensities across the seven areas
mentioned previously: the lower the standard deviation, the more uniform are reform intensities
and the broader is the reform process. Depth is defined as the magnitude of the reform effort in
the main areas targeted by the country, measured as the average reform intensity across the three
areas (among the seven covered in the aggregate reform intensity indicator) in which measured
reform intensity is highest.⁸²

Figure 7. Depth and breadth of labour market reforms

Ranking of countries according to the breadth of their labour market reforms¹

Broad
reforms

High intensity
of prioritised
reforms

1. The breadth of reforms is measured as the normalised standard deviation of reform intensities across areas (the lower the standard deviation, the more uniform reform intensities are across areas).

2. The depth of labour market reforms is measured as the average reform intensity across the three areas in which the country's reform effort has been strongest.

Source: Brandt, Burniaux and Duval (2005).

80. For a theoretical framework stressing the importance of policy interactions, see Coe and Snower (1997). For empirical evidence, see for
instance Belot and Van Ours (2000) or Elmeskov et al. (1998). As previously mentioned, complementarities may also exist as regards the
political economy of reform.

⁸¹.For example, behind the broadly similar value of the overall indicator for Austria and the United Kingdom lie in fact very different compositions
of reform, as Austria undertook moderate efforts spread over a wide range of areas while the United Kingdom carried out major reforms
concentrated on two areas (labour taxes and ALMPs).

82. Considering the two - rather than three - highest reform intensities would alter only marginally the ranking of countries.

182

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