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OECD Employment Outlook
«
2004
Clocking in (and out): several facets of working time – How do working hours vary across OECD
countries? What are the links between employment rates for women and other under-represented
groups, the incidence of part-time work and total hours worked? Is work-life balance threatened by
OECD Employment
rising employment rates for parents and a “long-hours culture”? Outlook
Employment protection regulation and labour market performance – Do employment protection
regulations have an impact on firms’ hiring and firing decisions and is this impact different across
demographic groups? Do such regulations explain the high incidence of temporary work recorded in
certain countries? How best to instill labour market dynamism while also protecting workers against
job and income loss?

Wage-setting institutions and outcomes – Have wage-setting institutions become more supportive of
high employment rates and broadly-shared prosperity? To what extent is the trend towards lower
union density and more decentralised collective bargaining a factor behind wage moderation and
greater earnings inequality recorded in some OECD countries?

Improving skills for more and better jobs: does training make a difference? – Do policies that enhance
workers’ skills help improve the overall employment situation? To what extent do workers who receive
training enjoy better job prospects to the detriment of their non-trained counterparts? Are the effects
of training different across demographic groups and what do empirical findings suggest as regards
lifelong learning strategies?

Informal employment and promoting the transition to a salaried economy – To what extent does
undeclared work include household production, work helping out friends, work by illegal migrants,
undeclared wages, “black market” transactions, tax evasion by the self-employed, and the production
of illicit goods? Do high taxes, red tape, poor-quality government services and strict employment
regulations exclude workers from formal employment, and how can the transition to a salaried
economy be promoted?

OECD Employment Outlook

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ISBN 92-64-10812-2
81 2004 12 1 P

2004
-:HSTCQE=VU]VW\: 2004
 OECD Employment
Outlook

2004

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

 The OECD Employment Outlook
provides an annual assessment of labour market developments and prospects in member
countries. Each issue contains an overall analysis of the latest labour market trends and short-term
forecasts, and examines key labour market developments. Reference statistics are also included.
The OECD Employment Outlook is the joint work of staff of the Directorate for Employment,
Labour and Social Affairs, and has benefitted from contributions from national government
delegates. It is published on the responsibility of the Secretary-General of the OECD.
This report is based on draft contributions from Pascal Marianna and Paul Swaim (Chapter 1),
Glenda Quintini and Anne Saint-Martin (Chapter 2), Paul Swaim and Peter Tergeist (Chapter 3),
Andrea Bassanini (Chapter 4), David Grubb (Chapter 5). Raymond Torres coordinated the report. The
assessments of countries' labour market prospects do not necessarily correspond to those of the
national authorities concerned.

THE ORGANISATION FOR ECONOMIC CO-OPERATION

AND DEVELOPMENT (OECD)
was set up under a Convention signed in Paris on 14th December 1960, which provides that the OECD shall
promote policies designed:
– to achieve the highest sustainable economic growth and employment and a rising standard of living in member
countries, while maintaining financial stability, and thus to contribute to the development of the world economy;
– to contribute to sound economic expansion in member as well as non-member countries in the process of
economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with
international obligations.
The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States. The following countries became members subsequently through
accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia
(7th June 1971), New Zealand 29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995),
Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and Slovak Republic
(14th December 2000). The Commission of the European Communities takes part in the work of the OECD
(Article 13 of the OECD Convention).

Publié en français sous le titre :

Perspectives de l’emploi de l’OCDE : 2004

© OECD 2004

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 TABLE OF CONTENTS

Table of Contents
Editorial – Reassessing the OECD Jobs Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter 1. Recent Labour Market Developments and Prospects . . . . . . . . . . . . . . . . . . . 17

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1. Recent labour market developments and prospects . . . . . . . . . . . . . . . . . . . . . . . . 18
A. Economic outlook to the year 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. Employment and unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
C. Compensation and labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2. Clocking in (and out): several facets of working time . . . . . . . . . . . . . . . . . . . . . . . 24
A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
B. The economy-wide perspective: the level and composition
of total hours worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
C. The worker’s perspective: work schedules and working-time
arrangements within families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Annex 1.A1. Data Sources, Definitions and Cross-country Comparability
for the Analysis of Working Time from the Economy-wide
Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Chapter 2. Employment Protection Regulation and Labour Market Performance. . . . . 61

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Main findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
1. Employment protection regulation in OECD countries . . . . . . . . . . . . . . . . . . . . . . 64
A. Looking into the black box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
B. Strictness of employment protection regulation in OCDE countries . . . . . . . 70
2. Links between EPL, labour market dynamics and labour market outcomes
for different groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
A. Safer jobs but longer spells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
B. Who pays for safer jobs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
C. Temporary or regular contracts: who is most protected? . . . . . . . . . . . . . . . . . 86
3. Making the most of EPL: preliminary considerations . . . . . . . . . . . . . . . . . . . . . . . 89
A. Why does employment protection exist? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
B. Guaranteeing employment and income security: the role of EPL
vis-à-vis other policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Annex 2.A1. Calculation of Summary Indicators of EPL Strictness . . . . . . . . . . . . . . 102
Annex 2.A2. Employment Protection Legislation Indices . . . . . . . . . . . . . . . . . . . . . . 107
Annex 2.A3. Data Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

OECD EMPLOYMENT OUTLOOK – ISBN 92-64-10812-2 – © OECD 2004 3

TABLE OF CONTENTS

Chapter 3. Wage-setting Institutions and Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Main findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
1. Setting the stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
A. The policy context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
B. How does the organisation of collective bargaining affect wages
and employment?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
C. How have wages evolved and what were the implications
for employment?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
D. Open questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
2. Wage-setting institutions: the structure of collective bargaining . . . . . . . . . . . . . 143
A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
B. Trade union density and collective bargaining coverage . . . . . . . . . . . . . . . . . 144
C. The importance of extension mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
D. Centralisation and co-ordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
3. Wage-setting institutions and economic performance. . . . . . . . . . . . . . . . . . . . . . 157
A. A first look . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
B. Wage-setting institutions and wage outcomes . . . . . . . . . . . . . . . . . . . . . . . . . 159
C. Wage-setting institutions and non-wage outcomes . . . . . . . . . . . . . . . . . . . . . 162
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Annex 3.A1. Sources of Data on Trade Union Density and Collective Bargaining
Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Chapter 4. Improving Skills for More and Better Jobs: Does Training Make
a Difference? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Main findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
1. Adult education and training and aggregate employment performance . . . . . . . 186
2. Escaping non-employment traps: adult training and individual
participation and unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
3. Better paid jobs: the effect of training on individual wages . . . . . . . . . . . . . . . . . . 197
4. More stable employment prospects: the effect of training on employment
security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Annex 4.A1. Supplementary Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
Annex 4.A2. Data Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

Chapter 5. Informal Employment and Promoting the Transition

to a Salaried Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Main findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
1. Why is the informal economy a problem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
A. High tax rates and low spending capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
B. Inability to effectively target and manage social protection . . . . . . . . . . . . . . 230
C. Unfair competition and incentives for unproductive activities. . . . . . . . . . . . 231

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 TABLE OF CONTENTS

D. Inefficiency of informal economy production . . . . . . . . . . . . . . . . . . . . . . . . . . 231

E. Facilitating illegal immigration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
2. Definition and measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
A. Definitional distinctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
B. The organisation of informal work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
C. Estimates for the incidence of informal employment . . . . . . . . . . . . . . . . . . . 241
3. Causes of informal employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
A. Tax, social security and regulatory burden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
B. Broader economic environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
C. General governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
4. Enforcement, tax administration and tax incentives . . . . . . . . . . . . . . . . . . . . . . . 261
A. Enforcement measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
B. Tax administration and tax structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
5. Delivering social protection in an economy with informal employment. . . . . . . 270
A. Social insurance and social assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
B. Targeted conditional transfers and labour market programmes. . . . . . . . . . . 272
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

List of Boxes

Chapter 1
1.1. The two margins of labour supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Chapter 2
2.1. The role of contractual provisions: some preliminary evidence . . . . . . . . . . . . . . . . 67
2.2. EPL reforms in Austria and New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.3. Methodological issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
2.4. EPL and employment performance of selected socio-demographic groups:
equation specifications and their limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
2.5. The system of Experience Rating in the United States . . . . . . . . . . . . . . . . . . . . . . . . 94
2.6. The Danish flexicurity approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Chapter 3
3.1. Wage setting in the original OECD Jobs Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
3.2. Measuring excess real wage pressure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
3.3. Bargaining governability: a supplementary indicator of co-ordination . . . . . . . . . . 152
3.4. Reform of wage setting in Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
3.5. Germany: co-ordinated decentralisation or model change? . . . . . . . . . . . . . . . . . . . 154
3.6. Centralised bargaining and social compacts: the example of Ireland . . . . . . . . . . . 156

Chapter 4
4.1. Beyond institution-driven wage compression: factors shaping the relationship
between education and the productivity-wage gap . . . . . . . . . . . . . . . . . . . . . . . . . . 187
4.2. Successfully coping with change: the survival strategy of the hosiery industry
in North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
4.3. Estimating the impact of training on individual labour market performance . . . . 194
4.4. Pooling resources together: training consortia in Korea . . . . . . . . . . . . . . . . . . . . . . . 208

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TABLE OF CONTENTS

Chapter 5
5.1. Undeclared work in the context of EU integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
5.2. Vicious circles, dual equilibria and negative externalities . . . . . . . . . . . . . . . . . . . . . 230
5.3. The non-observed economy in national accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
5.4. Definitional issues affecting the share of the informal economy in GDP. . . . . . . . . 237
5.5. Macroeconomic proxy estimates of the size of the informal economy . . . . . . . . . . 242
5.6. Theoretical tax liability calculations for VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
5.7. National differences in the scope and coverage of social security contribution
rate and revenue data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

List of Tables

Chapter 1
1.1. Growth of real GDP in OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.2. Employment and labour force growth in OECD countries . . . . . . . . . . . . . . . . . . . . . 20
1.3. Unemployment in OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.4. Business sector labour costs in OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
1.5. The anatomy of a typical work year for dependent employees, 2002 . . . . . . . . . . . . 35
1.6. Contribution of part-time employment to recent changes in average annual
or weekly hours of employees, 1990-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
1.7. Usual weekly hours of work most frequently reported: male employees
in their main job, 1985-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
1.8. Incidence of evening, weekend and shift work, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 43
1.9. Weekly work patterns of employed persons by family situation
and of couple families, averages for selected European countries . . . . . . . . . . . . . . 45
1.10. Multivariate estimates of the impact of work schedules on the conflict
between work hours and family life in Europe, 2000/2001 . . . . . . . . . . . . . . . . . . . . . 47

Chapter 2
2.1. Preliminary evidence on court cases in selected OECD countries . . . . . . . . . . . . . . . 68
2.2. EPL reduces labour market dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
2.3. A summary of empirical findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
2.4. The employment effects of EPL vary across population groups . . . . . . . . . . . . . . . . 85
2.5. Deregulation of temporary work has contributed to labour market duality . . . . . . 89

Annexes
2.A1.1. First step of the procedure: the 18 basis measures of EPL strictness . . . . . . . . . . 103
2.A1.2. EPL summary indicators at four successive levels of aggregation . . . . . . . . . . . . 106
2.A2.1. Indicators of the strictness of employment protection for regular
employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
2.A2.2. Regulation of temporary employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
2.A2.3. Regulation of collective dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
2.A2.4. Summary indicators of the strictness of employment protection legislation. . . 117
2.A2.5. Regulatory provisions are often complementary to each other . . . . . . . . . . . . . . 118
2.A2.6. EPL time series: breaking points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
2.A3.1. Variables description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

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Chapter 3
3.1. Correlations between wage and employment measures suggest
possible trade-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
3.2. Trends in earnings dispersion, 1980-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
3.3. Trade union density and collective bargaining coverage in OECD countries,
1970-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
3.4. Extension and enlargement of collective agreements. . . . . . . . . . . . . . . . . . . . . . . . . 148
3.5. Wage-setting institutions in OECD countries, 1970-2000 . . . . . . . . . . . . . . . . . . . . . . 151
3.6. The degree of bargaining centralisation/co-ordination (CC)
and macroeconomic performance since 1970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
3.7. Correlation coefficients between collective bargaining and wage outcomes,
1975-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
3.8. Descriptive regressions relating characteristics of the collective bargaining
system to wage outcomes, 1970-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
3.9. Correlation coefficients between collective bargaining and non-wage outcomes,
1975-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
3.10. Descriptive regressions relating characteristics of the collective bargaining
system to non-wage outcomes, 1970-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
3.11. Collective bargaining and the relative employment of youths, older persons
of working age, women and the low skilled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Chapter 4
4.1. A durable effect of training only for certain groups. . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Annexes
4.A1.1. Education and employment go hand in hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
4.A1.2. The correlation between training and employment is not only due
to institutions and education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
4.A1.3. Tests of within-group crowding-out effects (activity) . . . . . . . . . . . . . . . . . . . . . . . 214
4.A1.4. Tests of within-group crowding-out effects (unemployment). . . . . . . . . . . . . . . . 215
4.A1.5. Sensitivity analysis for the estimated effect of training on the probability
of re-employment by labour market group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

Chapter 5
5.1. Terms and concepts for main subcategories of informal income, output
and employment and the relationships between them . . . . . . . . . . . . . . . . . . . . . . . 236
5.2. Black hours worked and the value of black activities . . . . . . . . . . . . . . . . . . . . . . . . . 243
5.3. The shadow economy in Denmark, Norway, Sweden, Netherlands, Germany
and Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
5.4. Relative non-wage labour costs in the industry sectors “hotels and restaurants”
and “private households with domestic staff”, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 245
5.5. National-accounts-based estimates for the share of economic
underground (hidden) output and informal economic activity in GDP . . . . . . . . . . 246
5.6. Total receipts of compulsory social security contributions, compared
with theoretical liability arising on wages and salaries as recorded
in national accounts, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

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Statistical Annex
A. Standardised unemployment rates in 27 OECD countries . . . . . . . . . . . . . . . . . . . . . . . 293
B. Employment/population ratios, activity and unemployment rates . . . . . . . . . . . . . . . 294
C. Employment/population ratios, activity and unemployment rates
by selected age groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
D. Employment/population ratios, activity and unemployment rates
by educational attainment, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
E. Incidence and composition of part-time employment. . . . . . . . . . . . . . . . . . . . . . . . . . 310
F. Average annual hours actually worked per person in employment. . . . . . . . . . . . . . . 312
G. Incidence of long-term unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
H. Public expenditure and participant inflows in labour market programmes
in OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

List of Charts

Chapter 1
1.1. Annual hours worked per capita and per worker, 2002 . . . . . . . . . . . . . . . . . . . . . . . 26
1.2. Large differentials in hours per capita reflect differences in both hours
per worker and the employment rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1.3. Decomposition of the trend growth in labour utilisation, 1970-2002:
the contribution of hours per worker, the employment rate
and the age structure of the population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
1.4. Groups under-represented in employment also work fewer hours
when employed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1.5. 1990-2002 changes in annual hours reflect complex changes in work patterns . . . 33
1.6. Usual weekly hours vary considerably for both men and women . . . . . . . . . . . . . . 41
1.7. Proportion of employees working short and long usual hours, 1992 and 2002 . . . . 42
1.8. The incidence of different working-time arrangements in Europe, 2000/2001 . . . . 44

Chapter 2
2.1. The overall summary index and its three main components . . . . . . . . . . . . . . . . . . 72
2.2. Changes over time: some convergence but relative inertia in country rankings . . 73
2.3. Deregulation of temporary work as the most prevalent path of EPL reforms . . . . . 74
2.4. Simple correlations between EPL, labour market dynamics, and the incidence
of long term unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
2.5. EPL and labour market performance: simple cross-country correlations . . . . . . . . 81
2.6. Strictness of employment protection and the incidence of temporary work . . . . . 87
2.7. EPL reforms and changes in the incidence of temporary work
between 1990 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
2.8. Unemployment benefits re-assure workers while EPL makes them worry . . . . . . . 92
2.9. Active labour market policies raise perceptions of employment security . . . . . . . . 96

Annex
2.A2.1. EPL levels for the end of 1990s (version 2), published and revised . . . . . . . . . . . . 107

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Chapter 3
3.1. Recent trends in aggregate earnings suggest considerable wage restraint . . . . . . . 135
3.2. Shifts in the apparent “trade-off” between wages and unemployment,
1970-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
3.3. An overall trend toward rising wage dispersion, but also gains for women . . . . . . 140
3.4. Union density and coverage, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Chapter 4
4.1. The nature of jobs is changing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
4.2. Training and employment rates are correlated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
4.3. Trained workers participate more in the labour market
and have lower unemployment than their non-trained counterparts . . . . . . . . . . . 193
4.4. Training increases the probability of being active . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
4.5. Training reduces the risk of unemployment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
4.6. Wages grow faster after training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
4.7. Training has a positive impact on employment security . . . . . . . . . . . . . . . . . . . . . . 201
4.8. Trained workers quit more often and are less frequently dismissed
than non-trained workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
4.9. Training increases workers’ chances of getting a permanent contract . . . . . . . . . . 204
4.10. In some countries, trained workers experience relatively short unemployment
spells after dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
4.11. Training increases the probability of re-employment after job loss . . . . . . . . . . . . . 206

Chapter 5
5.1. Latvia: wage distribution in the public and private sectors . . . . . . . . . . . . . . . . . . . . 255

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Editorial
Reassessing the OECD Jobs Strategy

Editorial – Reassessing the OECD Jobs Strategy

The OECD Jobs Strategy has proven useful

but a reassessment is needed ten years on

A decade ago, OECD countries adopted the Jobs Strategy as a blueprint for reforms to cut
high and persistent unemployment. The Jobs Strategy shares many common features with
the European Employment Strategy which was first launched in 1997. Since its inception,
the OECD Jobs Strategy has played an influential role in the policy debate in member
countries. And a Secretariat evaluation in 1999 suggested that those countries that had
applied the Jobs Strategy the most had tended to perform relatively well in terms of
improved labour market performance.
Still, much has taken place in OECD countries’ labour market policies and outcomes
since 1999. Therefore, OECD Employment and Labour Ministers concluded when they met
in September 2003 in Paris, that it is timely to reassess the Jobs Strategy in the light of more
recent experience and future challenges.

There remains unfinished business

with unemployment…

For one thing, high unemployment has not disappeared. True, OECD unemployment is
somewhat below its pre-1994 rates and the latest OECD projections (see Chapter 1) point
to some reduction in unemployment rates over the next two years, supported by the
continuation of strong growth in certain countries (notably the United States) and a
recovery in most others (in particular Japan and, to a lesser extent, the European Union).
But this would still leave unemployment rates in many countries higher than they were in
the 1970s and 1980s.

… and to meet the challenges of ageing

populations, more and better jobs are needed

At the same time, the challenges posed to future economic growth and living standards by
ageing populations loom much larger now on policy agendas. Ministers concluded that the
best way to meet these challenges is to create more and better jobs, particularly for people
who are currently disadvantaged in the labour market and are disproportionately affected

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EDITORIAL – REASSESSING THE OECD JOBS STRATEGY

by unemployment and labour market inactivity. There is much scope to do this. About 35%
on average of the OECD population of working-age are not employed – the majority of them
being statistically classified as “inactive”, although they can, and often would like to, work.
This figure masks important cross-country differences, with the non-employment rate
being less than 30% in Australia, the Netherlands, New Zealand, the Nordic countries
(except Finland), North America, Switzerland and the United Kingdom, but over 40% in
Belgium, Central and Eastern Europe, Greece, Italy, Mexico and Turkey.
The Jobs Strategy was formulated at a time when cutting high and persistent unemployment
was the main preoccupation in many countries. The reassessment will examine how the
policy recommendations of the Jobs Strategy may need to be revised and/or extended to
meet the objective of more and better jobs.

However, measures to improve employment must

be reconciled with social goals. Governments
should be careful about: job security,…

Pursuing more and better jobs, however central an objective, needs to be combined with
other social objectives, in particular adequate social protection, a better reconciliation of
work and family life, and equity outcomes in line with national preferences.
The reform of employment protection legislation (EPL) is an important case in point. Chapter 2
shows that less strict EPL may make it easier for employers to hire workers, thereby improving
the job chances of groups which are subject to entry problems, such as youth and women.
However, at the same time these reforms would make it easier for employers to fire, thereby
heightening concerns about job insecurity among prime-age and older workers. Attention
should also be devoted to the nature of proposed reforms of EPL. Chapter 2 shows that, in order
to promote employment, some countries have eased provisions governing temporary jobs and
other “non-regular” contracts over the past decade, while leaving the protection of permanent
contracts practically unchanged. The result has been a rising incidence of “non-regular” forms
of employment in some countries, in conditions which are not always freely chosen by the
workers concerned. The question then arises as to the costs and benefits of reforms that focus
exclusively on non-regular contracts vis-à-vis changes to the rules governing regular contracts,
and how these costs and benefits are influenced by other labour and product market policies
and institutions.
Altogether, some dismissal protection, combined with well-functioning unemployment
benefit systems, effective re-employment services and product market competition, may
help balance the need for more labour market dynamism with that for employment and
income security. The nature of this policy mix, and how it should vary across countries,
requires further scrutiny as part of the reassessment.

… the methods used to promote work

incentives,…

Likewise, while some of the present Jobs Strategy recommendations unambiguously raise
work incentives, they may at the same time pose a challenge to social protection. For
instance, cutting welfare benefits or their duration will raise the return to work vis-à-vis
continued benefit receipt. A significant tightening of the conditions of access to benefits

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 EDITORIAL – REASSESSING THE OECD JOBS STRATEGY

may help ensure that individuals who can work do not withdraw from the labour market.
But care must also be taken that, as a result of such measures, hard-to-place individuals do
not drop out of the benefit system entirely and fall into poverty.
From this point of view, the adoption of a so-called “mutual obligations” approach to welfare
benefits may help meet both employment and social protection objectives. Through such
an approach, welfare recipients are offered counselling, job-search support and other
re-employment services. In turn, individuals must look actively for a job or take steps to
improve their employability as the counterpart for continued benefit support. Much evidence
has been collected on the design, implementation and effectiveness of such employment-
oriented social policies in recent years. The reassessment will focus particular attention to
how these activation measures can support re-employment effectively and the role of
employment services in this respect, particularly for recipients of sickness, disability and
lone-parent benefits – whose number has risen substantially in many member countries
over the past decade.
At the same time, getting a job must yield tangible benefits to the person in question and
her or his family. This is where so-called “making-work-pay” schemes (such as the
provision of employment-conditional welfare benefits that top-up low earnings, or cuts
in employer social security contributions targeted to low-paid workers) may also help
recipients go back to work. Further exploring the reforms to tax-benefit systems that work
and those that do not work, as well as their interaction with minimum wages, will also be
a central issue in the reassessment.

… the effects of flexible employment

on reconciling work and family life,…

One of the broad policy guidelines of the Jobs Strategy deals with the need to increase
“working-time flexibility” and many OECD countries have witnessed a growing use of
“non-standard” work schedules, including increased part-time employment, employment
outside of standard working hours and variable work schedules.
To a considerable extent, this experience validates the hope that such measures can
facilitate higher employment. For example, expanding options to work part-time can make
it easier for parents with young children to combine working and parenting and for some
older workers to extend their careers, while greater flexibility of working hours can help
firms adjust to changing work loads. However, Chapter 1 makes it clear that other working-
time arrangements tend to make it more, rather than less, difficult for workers to reconcile
their work and family life. Thus, workers who are on the job evenings, nights or week ends,
as well as those with unpredictable work schedules or particularly long hours, report
significantly greater conflicts between their work hours and their family responsibilities.
Further progress at raising employment rates, particularly among certain groups, needs to
go hand-in-hand with initiatives to better reconcile work and family life. This is an issue
which was underplayed in the original Jobs Strategy and it will receive greater attention in
the reassessment.

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EDITORIAL – REASSESSING THE OECD JOBS STRATEGY

… and the fallout of widening skill-based pay

differentials – which reinforces the case
for lifelong learning

There is much evidence to support the hypothesis that technical progress in OECD countries
over the past two decades has exhibited a bias against unskilled labour in favour of skilled
labour. This, in turn, highlights a potential trade-off between employment and equity
objectives. The earnings of low-skilled workers may have to fall (relative to the earnings of
high-skilled workers) in order to support labour demand for this group. Evidence in Chapter 3
confirms that, during the past two decades, earnings inequality has tended to widen, while
employment developments have often been more favourable in those countries where
earnings inequality has increased the most.
Lifelong learning may prove an effective way to improving employment prospects over the
long-run, thus easing trade-offs between efficiency and equity objectives. Chapter 4 provides
empirical evidence that, other things equal, workers who receive training have a greater
chance of keeping their job than their non-trained counterparts. Even when they lose their job,
workers who had received training prior to job loss enjoy relatively good re-employment
chances. There is also evidence that training policies targeted on a particular demographic
group do not entail major displacement effects within the group – in other words, there is a
positive net employment effect for the group as a whole. Training may thus be beneficial to
low-paid workers who are especially vulnerable to adverse shocks and often move from work
to unemployment or inactivity, thus complicating the task of labour market policies. It may
also improve the ability and willingness of older workers to extend their career.
This evidence, as well as that contained in last year’s Employment Outlook, strengthens the
argument for the lifelong learning pillar of the Jobs Strategy. However, this is also an area
where more concrete policy proposals are needed. Thus, the role of different co-financing
schemes and of policies to improve incentives to invest in the skills of low-educated and
other under-represented groups will be further reviewed as part of the reassessment.

The issue of how to facilitate transitions

from undeclared work to formal employment
also needs to be addressed

In several OECD countries like central and eastern European countries, Mexico, Turkey as
well as parts of Southern Europe, and in much of the non-OECD world, a significant
proportion of workers have informal or undeclared jobs, and/or the income they get from
work is undeclared in order to avoid paying taxes or social security contributions. This risks
creating a low-productivity trap. It also erodes the tax base for funding public goods,
thereby preventing the adoption of appropriate education and social protection systems,
which are of central importance for social cohesion and growth. Undeclared work was not
covered in the broad guidelines of the original Jobs Strategy and one of the challenges for
the reassessment is to develop recommendations in this area.
As a first step, Chapter 5 provides a comprehensive policy analysis of how to facilitate
transitions to formal employment. There is first a case for reforming certain regulations. In
particular, tax and social security systems should be made more coherent, while burdensome
regulations and administrative requirements falling on formal employment should be

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reviewed. Better implementation of existing regulations is also needed, including through the
establishment of well-functioning labour and tax inspectorates. Social protection and
employment promotion schemes should reach the really needy, even when they are employed
in the informal economy. At the same time, such schemes should be designed in ways that
encourage integration into the formal economy. In general, the quality of government
administration appears as a key factor in this area.

Finally, the joining up of policies, and alternative

policy packages, should be assessed

The Jobs Strategy has sometimes been treated as a list of independent recommendations.
However, experience suggests that interactions between policies and institutions may affect
employment outcomes and the extent to which economies are resilient to adverse shocks.
Thus, policies to stimulate labour market participation may be more effective if demand-side
obstacles are also addressed, e.g. by having a supportive macroeconomic policy environment,
by stimulating product-market competition, or by reducing overly-rigid employment
regulations. To take one example, active labour market programmes probably will have
greater success at promoting the re-employment of workers displaced by demand shifts
(e.g. as a result of trade liberalisation), if product market regulations are reformed so as to
foster vigorous competition.
Consideration of policy interactions and complementarities should examine why countries
such as Denmark, the Netherlands, New Zealand and the United States achieve similarly
high employment rates, despite their different policy settings and institutions. Indeed, one
of the challenges of the reassessment will be to understand whether different reform
“approaches” are possible.

The reassessment of the Jobs Strategy will be

presented to OECD Ministers in two years time

In sum, in response to the mandate by Employment and Labour Ministers, OECD has
undertaken to reassess the Jobs Strategy. Both this and next year’s editions of the Employment
Outlook will set out some of the evidence for this reassessment. Based on this evidence, the
policy guidelines and detailed recommendations will be modified or extended. The main
outcomes of the reassessment will be discussed by OECD Ministers in two years time. The
challenge is to formulate a balanced reform agenda that helps countries adapt to structural
change while also meeting employment and social objectives.

John P. Martin
Director for Employment, Labour and Social Affairs
June 2004

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© OECD 2004

Chapter 1

Recent Labour Market Developments

and Prospects
Special Focus on:
Clocking in (and out): Several Facets of Working Time

The amount of time devoted to paid work is at the nexus of several of the key economic
and social challenges facing OECD governments. The potential contribution of
working-time flexibility to lowering unemployment has been highlighted by the OECD
Jobs Strategy, while recent analyses of the sources of economic growth have
highlighted the importance of average hours worked. However, longer and flexible
working hours may not be fully compatible policy goals, nor are they an unmixed
blessing from the perspective of the well-being of workers and their families. How do
working hours vary across OECD countries? What are the links between employment
rates for women and other under-represented groups, the incidence of part-time work
and total hours worked? Is work-life balance threatened by rising employment rates
for parents and a “long-hours culture”?

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1. Recent labour market developments and prospects . . . . . . . . . . . . . . . . . . 18
2. Clocking in (and out): several facets of working time . . . . . . . . . . . . . . . . . 24
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Annex 1.A1. Data Sources, Definitions and Cross-country Comparability
for the Analysis of Working Time from the Economy-wide
Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

OECD EMPLOYMENT OUTLOOK – ISBN 92-64-10812-2 – © OECD 2004 17

1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

Introduction
The world economy appears to be moving into a broad and sustainable recovery,
although some continental European countries have thus far been largely bypassed. Even in
those countries where the recovery is already well underway, labour market conditions have
been slow to register improvements. Section 1 of this chapter surveys recent economic
developments and prospects, with particular emphasis on labour markets. The special focus
section of the chapter then analyses trends in working time since 1970. Several facets of
working time are considered from two distinct perspectives: i) how working time patterns
interact with employment rates to influence total labour input and growth; and ii) how
working hours affect the time use patterns and welfare of workers and their families.

1. Recent labour market developments and prospects

A. Economic outlook to the year 2005
In the OECD area as a whole, real GDP growth was 2.2% in 2003, up modestly from 1.7% in
the previous year (Table 1.1). The global recovery is being led by the United States, as often in
the past. Under the effect of the buoyancy of economic activity in Asia, and especially China,
the recovery also got an early start in Australia, Japan, New Zealand and the United Kingdom,
where it continued to gain momentum during 2003. By contrast, the largest euro area
economies recorded anaemic growth, albeit less so in France than in Germany and Italy.
However, the situation is quite diverse in continental Europe. The Netherlands, Portugal
and Switzerland experienced negative growth in 2003, while all new members of the
European Union – the Czech Republic, Hungary, Poland and the Slovak Republic – recorded
significant growth.
The OECD’s short-term projections indicate more rapid growth in the OECD area
during 2004-05, averaging a little above 3%, as the recovery matures and broadens
(Table 1.1). Growth will continue to strengthen in the United States, Japan and the
United Kingdom in 2004, albeit for different reasons. While strong activity in industry,
exports and personal spending explain the strength in the recovery in the United States
and in Japan, growth in the United Kingdom is driven by buoyant retail sales and improving
orders amid subdued industrial production. After having been largely bypassed by the
global recovery in 2003, growth will become more robust in continental European
economies during 2004 and 2005. Nonetheless, the gap in real GDP growth between Europe
and the United States, which widened during 2003, is projected to remain at approximately
the same level in 2005. The expansion is also projected to gain strength in Australia, Korea,
and New Zealand, as a result of the regional buoyancy, while Turkey’s recovery is expected
to continue at a better than 5% annual growth rate.

B. Employment and unemployment

Employment growth remained sluggish in 2003, even in those OECD countries where
output growth has been quite strong (Table 1.2). Indeed, one-half of all the OECD countries

18 OECD EMPLOYMENT OUTLOOK – ISBN 92-64-10812-2 – © OECD 2004

 1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

Table 1.1. Growth of real GDP in OECD countriesa, b

Percentage change from previous period

Share in total Projections

Average
OECD GDP 2002 2003
1991-2001 2004 2005
2000

North America
Canada 3.3 3.3 3.3 1.7 2.8 3.3
Mexico 3.3 3.0 0.7 1.3 3.5 4.2
United States 36.4 3.3 2.2 3.1 4.7 3.7

Asia
Japan 12.2 1.2 –0.3 2.7 3.0 2.8
Korea 2.9 5.4 6.9 3.1 5.6 5.9

Europe
Denmark 0.6 2.4 1.0 0.4 1.9 2.6
Finland 0.5 2.7 2.3 1.9 2.5 3.7
Norway 0.6 3.6 1.4 0.3 3.1 2.7
Sweden 0.9 2.2 2.1 1.6 2.5 2.8
Greece 0.6 2.4 3.9 4.2 4.0 3.5
Italy 5.3 1.6 0.4 0.4 0.9 1.9
Portugal 0.6 2.5 0.5 –1.3 0.8 2.4
Spain 3.0 2.7 2.0 2.4 2.9 3.3
Czech Republic 0.5 1.0 2.0 2.9 3.1 3.4
Hungary 0.4 2.4 3.5 2.9 3.3 3.8
Poland 1.5 4.5 1.4 3.7 4.7 4.5
Slovak Republic 0.2 .. 4.4 4.2 4.3 4.8
Austria 0.8 2.1 1.4 0.7 1.5 2.4
Belgium 1.0 2.0 0.7 1.1 2.0 2.6
France 5.7 2.0 1.1 0.5 2.0 2.6
Germanyc 7.6 2.0 0.2 –0.1 1.1 2.1
Iceland 0.0 2.9 –0.6 4.0 3.8 4.8
Ireland 0.4 7.7 6.9 1.4 3.4 4.6
Luxembourg 0.1 4.8 1.3 1.7 2.6 3.6
Netherlands 1.6 2.8 0.2 –0.7 0.9 2.1
Switzerland 0.8 1.2 0.2 –0.5 1.8 2.3
Turkey 1.7 2.7 7.9 5.8 5.2 5.2
United Kingdom 5.5 2.8 1.6 2.2 3.1 2.7

Oceania
Australia 1.8 3.8 3.4 3.3 3.8 3.5
New Zealand 0.3 3.3 4.3 3.0 3.3 2.5

OECD Europed 39.9 2.3 1.4 1.2 2.2 2.7

EU-15 34.1 2.3 1.1 0.9 1.8 2.5

d
EU-19 36.8 2.3 1.1 1.0 2.0 2.6

Total OECDd 100.0 2.7 1.7 2.2 3.4 3.2

. . Data not available.

a) The OECD Secretariat’s projection methods and underlying statistical concepts and sources are described in detail
in “Sources and Methods: OECD Economic Outlook” which can be downloaded from the OECD Internet site
(www.oecd.org/dataoecd/29/23/25501352.pdf).
b) Aggregates are computed on the basis of 2000 GDP weights expressed in 2000 purchasing power parities.
c) The average growth rate has been calculated by chaining on data for the whole of Germany to the corresponding
data for western Germany prior to 1992.
d) Averages for 1991-2001 exclude the Slovak Republic.
Source: OECD Economic Outlook, No. 75, June 2004.

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1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

Table 1.2. Employment and labour force growth in OECD countriesa

Percentage change from previous period

Employment Labour force

Level Average Projections Level Average Projections

2002 1991- 2002 2003 2002 1991- 2002 2003
(000s) 2001 2004 2005 (000s) 2001 2004 2005

North America
Canada 15 412 1.6 2.2 2.2 1.7 1.5 16 687 1.3 2.7 2.2 1.3 1.3
Mexico 19 731 2.6 1.4 1.3 2.0 2.6 20 277 2.6 1.7 1.9 2.3 2.2
United States 136 487 1.5 –0.3 0.9 1.0 1.7 144 869 1.3 0.8 1.1 0.5 1.4

Asia
Japan 63 304 0.1 –1.3 –0.2 0.0 0.3 66 890 0.4 –0.9 –0.3 –0.3 –0.1
Korea 22 169 1.5 2.8 –0.1 1.7 1.2 22 877 1.6 2.0 0.2 1.6 0.9

Europe
Denmark 2 733 0.3 0.4 –1.0 0.0 0.4 2 864 –0.1 0.7 0.2 0.4 0.2
Finland 2 364 0.0 0.2 –0.3 0.0 1.4 2 600 0.2 0.1 –0.4 –0.2 0.7
Norway 2 286 1.3 0.4 –0.8 0.5 1.0 2 379 1.1 0.7 –0.1 0.4 0.8
Sweden 4 242 –0.4 0.1 –0.2 –0.4 0.9 4 418 –0.3 0.1 0.7 0.6 0.6
Greece 3 925 0.8 0.1 2.2 1.7 1.4 4 369 1.1 –0.3 1.4 0.9 0.9
Italy 21 613 0.1 1.5 1.0 0.5 1.3 23 776 0.2 0.9 0.6 0.3 1.2
Portugal 5 077 0.8 0.3 –0.9 0.3 1.4 5 349 0.8 1.3 0.5 0.5 0.9
Spain 16 258 2.0 2.0 2.7 2.8 2.8 18 340 1.9 3.0 2.6 2.3 2.0
Czech Republic 4 730 –0.5 1.0 –0.7 –0.5 0.0 5 104 –0.1 0.0 –0.1 0.0 0.0
Hungary 3 830 –1.5 0.1 1.3 1.1 1.3 4 068 –1.3 0.2 1.3 1.1 1.1
Poland 13 782 –1.5 –3.0 –1.2 0.7 1.1 17 213 –0.5 –0.9 –1.6 0.8 0.5
Slovak Republic 2 127 .. 0.2 1.8 1.0 1.3 2 614 .. –0.7 0.3 0.0 0.0
Austria 4 066 0.3 –0.2 0.3 0.3 0.9 4 302 0.3 0.5 0.5 0.5 0.8
Belgium 4 186 0.7 –0.3 –0.4 0.3 1.0 4 517 0.8 0.4 0.4 0.5 0.7
France 24 644 0.8 0.5 –0.2 0.2 0.5 27 082 0.7 0.9 0.6 0.3 0.3
Germanyb 38 671 0.4 –0.6 –1.1 –0.3 0.6 42 067 0.6 0.1 –0.4 –0.2 0.3
Iceland 157 1.5 –1.5 1.5 2.1 3.0 162 1.5 –0.4 1.6 1.8 2.7
Ireland 1 765 4.2 1.4 1.2 1.4 1.6 1 847 3.0 1.9 1.5 1.5 1.6
Luxembourg 191 1.4 1.7 1.0 0.7 1.0 197 1.5 2.1 1.9 1.3 1.2
Netherlands 7 141 2.0 1.1 –0.6 –0.9 1.2 7 311 1.6 1.4 0.6 0.7 1.3
Switzerland 4 180 0.3 0.6 –0.1 0.7 1.1 4 314 0.4 1.2 0.9 0.5 0.6
Turkey 21 854 1.1 –0.8 –2.6 0.8 1.4 24 318 1.1 1.4 –2.2 1.1 2.0
United Kingdom 27 865 0.6 0.7 0.9 0.8 0.7 29 384 0.3 0.8 0.7 0.6 0.7

Oceania
Australia 9 369 1.7 2.0 2.4 1.8 1.7 10 001 1.4 1.5 1.9 1.6 1.5
New Zealand 1 877 2.2 2.9 2.4 1.8 1.1 1 980 1.7 2.8 1.8 1.8 1.3

OECD Europec 217 685 0.5 0.1 –0.1 0.5 1.1 238 595 0.6 0.7 0.1 0.6 0.9

EU-15 164 740 0.7 0.5 0.2 0.5 1.0 178 422 0.7 0.9 0.6 0.5 0.8

EU-19c 189 209 0.5 –0.9 0.1 0.5 1.0 207 422 0.6 –0.6 0.4 0.5 0.7

Total OECDc 486 034 0.9 0.1 0.3 0.8 1.3 522 175 0.9 0.7 0.5 0.6 1.0

. . Data not available.

a) See note a) to Table 1.1.
b) The average growth rate has been calculated by chaining on data for the whole of Germany to the corresponding
data for western Germany prior to 1992.
c) Averages for 1991-2001 exclude the Slovak Republic.
Source: OECD Economic Outlook, No. 75, June 2004.

20 OECD EMPLOYMENT OUTLOOK – ISBN 92-64-10812-2 – © OECD 2004

 1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

experienced negative employment growth in 2003, including Japan, Korea and Turkey, where
real GDP growth ranged between 3% and 5%. Hiring also lagged in the United States, where
there has been much concern about a “jobless recovery”. Firms may have delayed their hiring
decisions because they are still reaping the latent productivity gains stemming from the
investment undertaken in the late 1990s or due to geopolitical worries, and uncertainties
concerning the timeliness and robustness of recovery, but now appear posed to quicken
hiring. In Europe, job losses in the recent downturn were smaller than in past cycles, and that
helps to explain the weakness of job creation at the early stages of the recovery. By contrast,
employment growth exceeded 2% in Australia, Canada, Greece, New Zealand and Spain. As
the recovery broadens and deepens, employment performance should strengthen
during 2004-05. By 2005, employment growth is expected to be positive in all OECD countries
and to average 1%, very near the average level observed during the 1990s. The gap in
employment growth between Europe and the United States is projected to narrow
somewhat, but not to fully close. While employment in Europe is expected to grow at 1.1%
in 2005, employment growth in the United States is projected at a higher 1.7%. Growth rates
exceeding 2% are expected only in Iceland, Mexico and Spain. Labour force growth is also
projected to quicken moderately in most countries, although it will remain negative in Japan.
In 2003, unemployment in the OECD area increased by 0.2 percentage point,
representing 1.2 million persons, and attained 7.1% of the labour force, representing more
than 37 million unemployed persons (Table 1.3). This probably represents the peak level for
the current business cycle, since unemployment is projected to recede modestly during the
next two years, falling to 6.7% in 2005 (still nearly 36 million people). Unemployment
had already begun to fall in Australia, Japan, New Zealand and the United Kingdom
during 2003, even as it continued to inch upwards in the United States and most
continental European countries, notably France and Germany. The projected fall in the US
unemployment rate, from 6% of the labour force in 2003 to 5.2% in 2005, is only partly
explained by improving employment growth, since historically low labour force growth of
the last several years is projected to continue. In Japan, unemployment rate is expected to
fall below 5% in 2005, despite little net job creation, due to a shrinking labour force. In
Europe, unemployment is expected to remain at high levels in 2005: over 14 million people
in the EU-15 and over 18 million people in the EU-19. Unemployment rates will begin to fall
only as employment growth strengthens in 2005. However, little or no progress in lowering
unemployment is projected for many European countries during the next two years.
Indeed, unemployment is projected to be higher in 2005 than in 2003 in the Czech Republic,
Denmark, Luxembourg, the Netherlands, Sweden and Turkey, while it will fall by more
than one-half of a percentage point only in Finland, Greece, the Slovak Republic, Spain
and Switzerland. In non-European countries, outside Japan and the United States,
unemployment is projected to decrease in 2004-05 in Australia, Canada, Korea and Mexico.

C. Compensation and labour costs

In 2003, the growth in nominal compensation per employee in the business sector
accelerated moderately in the OECD-area, rising from 2.3% to 2.8% (Table 1.4). The OECD
projections indicate that this mild acceleration will continue during the next two years,
with compensation rising by 3.5% in 2005, which is still below that the 4.2% average growth
rate during 1991-2001. In OECD Europe, nominal compensation growth is projected to
plateau at its 2001 level, of approximately 3%. However, this average masks the fact that in
about half of the European countries the pace of compensation growth will either slow

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1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

Table 1.3. Unemployment in OECD countriesa

Percentage of labour force Millions

Average Projections Average Projections

2002 2003 2002 2003
1991-2001 2004 2005 1991-2001 2004 2005

North America
Canada 9.2 7.6 7.6 7.3 7.1 1.4 1.3 1.3 1.3 1.2
Mexico 3.5 2.7 3.3 3.5 3.1 0.6 0.5 0.7 0.7 0.7
United States 5.5 5.8 6.0 5.5 5.2 7.4 8.4 8.8 8.1 7.8

Asia
Japan 3.5 5.4 5.3 5.0 4.6 2.3 3.6 3.5 3.3 3.0
Korea 3.5 3.1 3.4 3.3 3.0 0.7 0.7 0.8 0.8 0.7

Europe
Denmark 6.4 4.6 5.6 6.0 5.8 0.2 0.1 0.2 0.2 0.2
Finland 12.3 9.1 9.1 8.9 8.3 0.3 0.2 0.2 0.2 0.2
Norway 4.5 3.9 4.5 4.4 4.2 0.1 0.1 0.1 0.1 0.1
Sweden 6.3 4.0 4.9 5.8 5.4 0.3 0.2 0.2 0.3 0.2
Greece 9.9 10.2 9.5 8.8 8.4 0.4 0.4 0.4 0.4 0.4
Italy 10.7 9.1 8.8 8.6 8.5 2.5 2.2 2.1 2.1 2.1
Portugal 5.4 5.1 6.4 6.6 6.1 0.3 0.3 0.3 0.4 0.3
Spain 14.7 11.4 11.3 10.9 10.2 2.3 2.1 2.1 2.1 2.0
Czech Republic 5.7 7.3 7.8 8.3 8.3 0.3 0.4 0.4 0.4 0.4
Hungary 8.5 5.9 5.9 5.9 5.7 0.4 0.2 0.2 0.2 0.2
Poland 13.3 19.9 19.6 19.7 19.2 2.3 3.4 3.3 3.4 3.3
Slovak Republic .. 18.6 17.4 16.6 15.5 .. 0.5 0.5 0.4 0.4
Austria 5.2 5.5 5.7 5.9 5.8 0.2 0.2 0.2 0.3 0.3
Belgium 8.4 7.3 8.1 8.3 8.0 0.4 0.3 0.4 0.4 0.4
France 10.8 9.0 9.7 9.9 9.6 2.8 2.4 2.6 2.7 2.6
Germany 7.7 8.1 8.7 8.8 8.5 3.1 3.4 3.7 3.7 3.6
Iceland 3.5 3.3 3.3 3.1 2.8 0.0 0.0 0.0 0.0 0.0
Ireland 10.5 4.4 4.7 4.8 4.8 0.2 0.1 0.1 0.1 0.1
Luxembourg 2.6 3.0 3.8 4.3 4.5 0.0 0.0 0.0 0.0 0.0
Netherlands 5.1 2.3 3.5 5.0 5.1 0.3 0.2 0.3 0.4 0.4
Switzerland 3.2 3.1 4.0 3.8 3.4 0.1 0.1 0.2 0.2 0.2
Turkey 7.5 10.1 10.5 10.7 11.2 1.7 2.5 2.5 2.6 2.7
United Kingdom 7.8 5.2 5.0 4.8 4.8 2.2 1.5 1.5 1.4 1.4

Oceania
Australia 8.4 6.3 5.9 5.7 5.5 0.8 0.6 0.6 0.6 0.6
New Zealand 7.5 5.2 4.7 4.7 4.9 0.1 0.1 0.1 0.1 0.1

OECD Europeb, c 9.0 8.8 9.0 9.1 8.9 20.3 20.9 21.6 21.8 21.5
b
EU-15 9.1 7.7 8.0 8.0 7.8 15.4 13.7 14.4 14.4 14.1
b, c
EU-19 9.4 8.8 9.0 9.0 8.8 18.7 18.2 18.8 18.9 18.5

Total OECDb 6.9 6.9 7.1 6.9 6.7 33.7 36.1 37.3 36.7 35.7

.. Data not available.

a) See note a) to Table 1.1.
b) Unemployment rate aggregates are computed using labour force weights.
c) Averages for 1991-2001 exclude the Slovak Republic.
Source: OECD Economic Outlook, No. 75, June 2004.

22 OECD EMPLOYMENT OUTLOOK – ISBN 92-64-10812-2 – © OECD 2004

 1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

Table 1.4. Business sector labour costs in OECD countriesa, b

Percentage change from previous period

Compensation per employee Unit labour costs

Average Projections Average Projections

2002 2003 2002 2003
1991-2001 2004 2005 1991-2001 2004 2005

North America
Canada 3.0 2.7 1.5 2.5 3.6 1.1 1.3 1.8 1.1 1.5
Mexico 16.4 5.2 5.0 4.6 4.4 15.8 6.0 5.1 3.3 2.8
United States 3.8 2.1 3.0 4.3 4.8 1.9 –1.7 –0.4 0.2 2.7

Asia
Japan 0.3 –2.2 –0.3 0.3 0.4 –0.8 –3.1 –3.6 –2.9 –2.1
Korea 7.8 10.5 8.9 6.1 7.1 3.4 5.9 5.2 1.9 2.1

Europe
Denmark 3.4 1.8 3.9 3.5 3.4 0.8 1.0 2.1 2.1 0.9
Finland 3.3 1.3 3.5 3.6 3.9 0.1 –0.4 0.6 0.5 1.1
Norway 4.3 5.7 4.3 3.8 4.2 1.8 3.9 2.3 0.0 1.5
Sweden 4.9 2.2 2.0 2.8 4.0 1.8 –0.3 –0.6 –0.4 1.8
Greece 8.9 6.8 5.7 6.1 6.0 7.0 2.5 3.6 3.6 3.6
Italy 3.4 2.2 3.3 3.0 2.9 1.7 3.3 3.4 2.6 2.1
Portugal 6.9 3.8 3.1 2.2 2.5 4.8 3.4 3.8 1.7 1.6
Spain 4.8 4.2 4.8 4.3 4.2 3.4 3.6 3.9 3.5 2.9
Czech Republic 6.3 6.7 6.8 6.8 6.0 .. 5.8 2.5 2.7 2.3
Hungary 17.2 11.9 10.9 9.3 8.3 12.1 7.1 9.2 7.1 5.7
Poland 27.7 4.0 3.0 4.5 4.9 19.4 –1.1 –2.4 0.4 1.6
Slovak Republic 14.7 7.1 5.7 6.7 5.4 .. 2.4 2.6 3.6 1.7
Austria 3.0 2.4 1.9 1.9 2.3 0.8 0.6 1.4 0.6 0.7
Belgium 2.9 4.4 1.7 2.9 2.0 1.6 3.0 –0.1 1.0 0.3
France 1.8 2.5 2.6 2.8 2.9 0.5 1.8 1.6 0.8 0.7
Germanyc 3.3 1.5 1.6 1.3 1.6 1.6 0.6 0.6 –0.1 0.0
Iceland 5.4 5.9 3.7 4.8 7.0 3.8 4.7 1.1 3.1 5.0
Ireland 4.2 4.3 3.9 4.0 4.9 0.5 –1.5 3.9 1.8 1.7
Luxembourg 3.5 2.7 2.2 2.5 3.0 2.3 4.9 1.9 1.3 1.4
Netherlands 3.2 4.7 3.7 2.3 0.1 1.9 4.7 4.0 –0.4 –1.1
Switzerland 2.4 2.0 1.7 1.3 1.4 1.4 2.3 2.2 0.0 –0.1
Turkey .. .. .. .. .. .. .. .. .. ..
United Kingdom 4.5 2.8 4.3 5.2 4.7 2.5 1.9 2.8 2.6 2.4

Oceania
Australia 3.5 3.9 3.2 3.9 3.8 1.1 2.4 2.3 1.7 2.0
New Zealand 1.6 2.7 3.2 3.9 3.5 0.7 1.2 1.9 2.2 1.9

OECD Europed 4.6 2.8 3.1 3.1 3.0 2.5 1.9 2.0 1.4 1.3

EU-15 3.6 2.7 3.1 3.1 3.0 1.9 2.0 2.2 1.4 1.3

EU-19d 4.8 2.9 3.2 3.3 3.2 2.6 2.0 2.1 1.5 1.3
Total OECD less
high-inflation
countriesd, e 3.4 2.1 2.8 3.3 3.5 1.5 0.0 0.5 0.4 1.4

Total OECDd 4.2 2.3 2.8 3.3 3.5 2.3 0.2 0.6 0.5 1.5

.. Data not available.

a) See note a) to Table 1.1.
b) Aggregates are computed on the basis of 2000 GDP weights expressed in 2000 purchasing power parities.
c) The average growth rate has been calculated by chaining on data for the whole of Germany to the corresponding
data for western Germany prior to 1992.
d) Countries shown. Unit labour costs averages for 1991-2000 exclude the Czech and Slovak Republics.
e) High inflation countries are defined as countries which had 10% or more inflation in terms of GDP deflator on
average between 1991 and 2001 on the basis of historical data. Consequently, Hungary, Mexico, Poland and Turkey
are excluded from the aggregate.
Source: OECD Economic Outlook, No. 75, June 2004.

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1. RECENT LABOUR MARKET DEVELOPMENTS AND PROSPECTS

down or speed up significantly. The projections indicate that the marked acceleration
observed in the United Kingdom in 2003, will continue into 2004 before easing in 2005.
Outside Europe, the projections indicate an acceleration of growth in compensation per
employee in the United States and, to a lesser extent, Australia, Canada and New Zealand.
In Japan, compensation per employee fell by 2.2% in 2002, but this decline slowed
considerably in 2003 and modest positive growth is expected during 2004-05.
In the OECD area as a whole, the growth of unit labour costs in 2003 remained moderate
at 0.6%, albeit slightly higher than in the previous year (Table 1.4). The increase should be
similar in 2004, before accelerating to 1.5% in 2005 as labour markets tighten. The
acceleration is stronger than average in the United States, from a decline of 1.7% in 2002 to
an increase of 2.7% in 2005, due to a stronger than average recovery and a reduction in the
very high rate of productivity gains achieved early in the recovery. Despite experiencing its
strongest recovery in several decades, unit labour costs in Japan are projected to continue to
fall through 2005. In OECD European as a whole, growth in unit labour costs is projected to
decelerate in 2004, in reaction to continuing high economic slack, and to remain modest
in 2005. However, the United Kingdom which will continue to record more rapid growth in
unit labour costs, reflective of tighter labour market conditions, while unit labour costs are
projected to fall in the Netherlands, where unemployment is rising. The growth of unit
labour costs is projected to decelerate in Korea and Mexico.

2. Clocking in (and out): several facets of working time

A. Introduction
The amount of time that is devoted to paid work is at the nexus of several of the key
economic and social challenges facing OECD governments.1 One of these challenges is to
raise employment rates in the context of population ageing. When OECD Labour Ministers
met in Paris in September 2003 to discuss this challenge, they emphasised that increased
working-time flexibility can make an important contribution to raising employment (OECD,
2003a). For example, expanding options to work part-time can make it easier for mothers
with young children to combine working and parenting (Jaumotte, 2003; OECD, 2003b), while
greater flexibility of working hours can help firms adjust to changing work loads. Indeed,
the third policy guideline of the OECD Jobs Strategy (OECD, 1994) recommended that
governments take measures with the aim of “increasing working-time flexibility”.
The importance of working time for economic growth performance has received
increased attention recently. The strong revival in the productivity performance of
the United States since the mid-1990s has stimulated an outpouring of research on the
determinants of growth across countries. This body of research has clearly established a
remarkable fact: namely, that the sizeable US advantage in real GDP per capita, particularly
as compared to the most advanced European economies, is largely due to differences in total
hours worked per capita2 (Blanchard, 2004; OECD, 2003c), rather than to higher output per hour
worked. That the long-term decline in average annual working hours had stalled – and even
reversed – since the mid-1980s in the United States and a few other OECD member countries,
while it continued elsewhere in the OECD area – albeit often at a somewhat slower pace –,
was already well known (see for example, OECD 1998a). However, it had not been appreciated
that this divergence was becoming a major factor in determining relative growth
performance. That realisation heightens the interest in understanding the factors
influencing the evolution of per capita hours worked, including policies that could raise it.3

24 OECD EMPLOYMENT OUTLOOK – ISBN 92-64-10812-2 – © OECD 2004

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