Politics & Policies

OECD – The new Jobs Strategy

The labour markets of OECD and emerging economies are undergoing major transformations. The widespread slow-down in productivity and wage growth and high levels of income inequality in many countries are coupled with structural changes linked to the digital revolution, globalisation and demographic changes. These deep and rapid transformations raise new challenges for policy makers.

In most countries productivity gains from technological change and globalisation have not been broadly shared with workers. Productivity growth at the technological frontier remains high, suggesting that only a small group of innovative firms are able to fully take advantage of technological advances and globalisation, while many others trail further and further behind, weighing on aggregate productivity growth. At the same time, the distribution of income has become more tilted towards capital at the expense of labour income and the distribution of income and wealth has become increasingly unequal. Higher employment rates have mitigated but not prevented the rise in income inequality, and more remains to be done to better integrate those excluded from the labour market and to raise the effectiveness of redistribution through the tax and benefits system.

The aim of the new OECD Jobs Strategy is to help countries addressing these challenges. It provides detailed policy recommendations across a broad range of policy areas. The new Jobs Strategy, in particular, goes beyond job quantity and considers job quality and inclusiveness as central policy priorities, while emphasising the importance of resilience and adaptability for good economic and labour market performance in a changing world of work. The key message is that flexibility-enhancing policies in product and labour markets are necessary but not sufficient. Policies and institutions that protect workers, foster inclusiveness and allow workers and firms to make the most of ongoing changes are also needed to promote good and sustainable outcomes.

The key policy recommendations of the new OECD Jobs Strategy are organised around three broad principles that provide guidance on reforms across a broad range of public policy areas:

i. Promoting an environment in which high-quality jobs can thrive. Good labour market performance requires a sound macroeconomic framework, a growth-friendly environment and skills evolving in line with market needs. Adaptability in product and labour markets is also needed, and the costs and benefits of this should be fairly shared between workers and firms, as well as among workers on different contracts by avoiding an over-reliance on temporary (often precarious) contracts through balanced employment protection schemes.
ii. Preventing labour market exclusion and protecting individuals against labour market risks. Supporting the quick (re)integration of job seekers in employment remains a top priority, but the new strategy also highlights the importance of addressing challenges before they arise by promoting equality of opportunities and preventing the accumulation of disadvantages over the life-course.
iii. Preparing for future opportunities and challenges in a rapidly changing economy and labour market. People will need to be equipped with the right skills in a context of rapidly changing skills demands. Workers also need to remain protected against labour market risks in a world where new forms of work may arise.

The labour market as an engine of productivity growth

High productivity growth requires constant reallocation, in the sense that highly productive firms enter the market and expand while less productive ones downsize and eventually exit if they do not manage to upgrade their production processes. Empirical studies for OECD countries suggest that entry and exit alone contribute 15-45% to industry-level productivity growth. The evidence also suggests that job reallocations between existing firms raise productivity growth further as firms with high initial productivity levels gain market shares at the expense of lower-productivity firms.

The labour market is a key facilitator of productivity-enhancing reallocation that allows workers to move from downsizing firms to new and expanding ones. Empirical studies suggest that in OECD countries job reallocation – firm-level job creation and destruction– affects around 20% of employment every year. Worker reallocation– the sum of hires and separations – is even higher at around 30%. Although not all reallocation necessarily enhances productivity, these figures imply that small changes in net employment mask large gross worker flows between firms.

Chosen excerpts by Job Market Monitor. Read the whole story at Good jobs for all in a changing world of work Skills for Employment

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