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

It is therefore important that the changes are institutionalized by explicit in-
dexation and an announced "tablitta" for changes in entitlement ages (early
retirement and pension). An alternative procedure which plans to carry out the
adjustment in steps by only undertaking one small step in the near future and
leaving further steps for an unspecified future will not fulfill this requirement.

Figure 10: Retirement reform - budget effects

Note: The change in the primary balance (relative to GDP) relative to base case
Source: Velfærdskommissionen (2005d)

6.2 Labour market reform

Consider next a reform aiming at reducing structural unemployment. Specifi-
cally, the reform includes a shortening of the duration of unemployment benefits
(from 4 to 2.5 years), an extended "youth package" implying a stronger focus
on education and making it more difficult to enter the social security scheme
and with more focus on activation. These ingredients will reduce the struc-
tural unemployment rate by 1 percentage point. By linking a change in the
structural unemployment rate to explicit policy measures this also sheds light
on the general question concerning the importance of unemployment for public
finances.

The effects on employment and the public budget balance can be read from
figure 11 and 12.

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