Structural reforms and macro-economic policy - ETUC

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Structural reforms and macro-economic policy / 86 negative demand shock in 2001, which was at least partly caused by the previous monetary tightening in 2000 in the first place, the Maastricht regime failed dismally to offer a cure and re-ignite domestic demand. As stagnation was allowed to set in, the Maastricht regime in conjunction with supposedly equilibrating market forces then nurtured and amplified persistent divergences and the corresponding build-up of imbalances. And yet there is currently much excitement about a supposed recovery apparently underway at last. Pre-emptive cheers may be unfounded. In the context of the four-year global boom that started in 2003, the euro area has been the only world region that has managed to stagnate throughout. Of course, potential growth estimates have been adjusted downwards, which conveniently helped to close the negative output gap through statistical fudging rather than policy. Today, the global environment can hardly get any better, it seems almost bound to get worse. The ECB embarked on what it considers a ‘normalisation’ of interest rates (i.e. tightening) even before any compelling signs of a revival in domestic demand had emerged. With stagnation-oriented monetary policies set to continue and fiscal tightening ‘no matter what’ in the pipeline as well, the results will be just that: stagnation. Meanwhile, Germany’s beggar-thy-neighbour strategy poses another serious threat to the viability of EMU in Europe. Proponents of EMU should realize that it is first of all the Maastricht regime that requires structural reform. Structural reform to unleash market forces in full while failing to reform the ill-conceived Maastricht regime will lead not to competitive stability, but to competitive divergence instead. References • Aghion, P. and Howitt, P. 2005. Appropriate growth policy: a unifying framework, The 2005 • Joseph Schumpeter Lecture, European Economic Association, Amsterdam 25 August 2005. • Bibow, J. 2001. Making EMU work: Some lessons from the 1990s, International Review of Applied Economics, vol. 15(3): 233-259. • Bibow, J. 2005a. Germany in crisis: The unification challenge, macroeconomic policy shocks and traditions, and EMU, International Review of Applied Economics, vol. 19(1): 29-50. • Bibow, J. 2005b. Refocusing the ECB on output stabilisation and growth through inflation targeting?, ETUC conference. • Bibow, J. 2006a. Inflation persistence and taxpush inflation in Germany and the Euro area: A symptom of macroeconomic mismanagement, IMK Studies 12006. • Bibow, J. 2006b. Germany has not caught up with the rules of the game, Letter to the Editor, Financial Times, 24 April 2006. • De Grauwe 2005. Towards an intelligent Stability and Growth Pact, ETUC conference. • ECB 2003. Inflation differentials in the euro area: potential causes and policy implications, September. • ECB 2005. Monetary policy and inflation differentials in a heterogeneous currency area, Monthly Bulletin,May,pp.61-77. • Horn, G. 2006. Structural unemployment and low growth potential as a self-fulfilling prophecy, ETUC conference, 20-21 March 2006, Brussels. • Issing, O. 2006. ‘Der Euro hat ein langes Leben’, Im Gespraech, Handelsblatt, 29 May 2006. • Mundell, R. A. 1961. A theory of optimum currency areas, American Economic Review, 51: 657-75. • OECD 2004. Euro Area Survey.
LABOUR MARKET REFORMS AND MACRO-ECONOMIC POLICIES IN THE LISBON AGENDA Richard Exell 1 This is an important moment.We need to look at the structural reforms that have happened so far, and decide what reforms we can and cannot support. The first point I would want to make is that the trade union movement needs to argue intelligently, but that we also need to stand out against the developing consensus when that consensus is pointing in the wrong direction. There is a tendency among some economists to see employment regulation, strong labour market institutions and high standards of social protection only as a problem. But, of course, the laws, institutions and practices that make up employment regulation do more than simply affect the degree of labour market flexibility in the economy. They were all introduced to promote a desirable social purpose. Some may do so ineffectively or inefficiently; and that is worth knowing; but a policy that saw them only as ‘rigidities’ to be got rid of would be neither desirable nor feasible. Despite the reputation of our government, what we have actually seen since 1997 has been the partial reregulation of the labour market. Take the minimum wage. I know that minimum wages are controversial for unions in some countries, but here I want to just consider the neo-liberal politicians and economists who bitterly opposed it because it would reduce wage flexibility; it would, we were told, increase unemployment and inflation. In fact, price rises in 1999 (the year the minimum wage was introduced) were lower than in the previous year. Employment rose by 250,000 in that year, and it has continued to rise alongside the minimum wage, so that there are now more than a million more jobs than there were 7 years ago. Contrary to some predictions, the minimum wage has raised productivity and output. When it was increased in 2001, nearly a fifth of firms responded by 1 TUC - UK increasing their use of new technology, and it has also been responsible for modest increases in training and improvements in retention and motivation in the low-paying sectors. The minimum wage has made life better for many low paid workers. 1.2 million received a pay increase, with black and minority ethnic workers and disabled people gaining disproportionately; and over a million people have gained from each subsequent increase. It has reduced the gender pay gap by about 1.5%. Or consider the rights introduced by the Working Time Directive. These rights enhance efficiency through improved health and safety, a better climate for gender equality, promoting better work-life balance. Indirectly it reduces labour turnover, leads to increased innovation and more innovation. In the UK, despite the severe limitations resulting from our opt-out, 6 million people got an increase in their holiday entitlement, including 2 million who had previously had no holidays at all. This is a large increase in the total of human happiness, and it is shocking how many politicians and commentators pay it no attention at all. We need these rights to have the force of law because there are far too many employers who will do nothing, even when better conditions would be in their interests, helping them to maximise the contribution their workforce can make to the organisation. A major survey, known as Working in Britain, found that “managers are pragmatic enough to adapt to change in the way they treat their employees when it is required of them but few seem willing to take any positive initiative to introduce workplace reform to meet worker demands or aspirations.” Getting rid of employment legislation would not make the problems it addresses go away. Remove rights and workers will try to defend themselves through their unions, weaken the unions and they will turn to the courts. Businesses hate the ‘compensation culture’ that has long been a feature PART 3: Structural reforms and the european macro-economic policy regime / 87
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Structural reforms and macro-econom
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overview Introduction - Reiner Hoff
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PART 1 Structural reforms: What has
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described as an economy that is in
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The policy conclusions following fr
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74 72 70 68 66 54 62 60 58 56 54 Bu
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Table 4 Main characteristics of lab
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employment. However, these programm
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LABOUR REFORMS IN ITALY 1993-2006 O
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PART 2 Structural reforms: The way
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% of labour force Almost 16% of you
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This observation may have major imp
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female. In the ‘better jobs’, t
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Page 93: Acknowledgements The conference and
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