Economic and Social Models in Europe and the Importance of Reform

This paper contributes to the ongoing debate on European economic and social models. It provides a comparative assessment of fiscal and regulatory policies in 17 industrialised countries (the EU15, US and Japan) and presents the records of these countries in attaining key economic and social objectives. Social and economic systems that feature efficient public sectors and flexible market structures tend to experience reasonably sustainable public finances, high economic growth, education standards and employment, and well-functioning markets. Anglo-Saxon countries broadly fit this mould, albeit, seemingly, at some cost of income equality. A more pronounced emphasis on welfare state policies and the corresponding relatively high levels of public spending bring benefit to income distribution in the Nordic countries while the resulting inefficiencies in their economies are counterbalanced by flexibility in labour and particularly product markets. Also, a number of reform-minded European countries have improved their fiscal and regulatory policies while significantly enhancing the functioning of markets, fiscal sustainability and economic performance. This was generally attained without jeopardising social objectives. On the other hand, those continental and Mediterranean countries that maintain market inefficiencies and at the same time sustain expensive and inefficient welfare states generally suffer from low growth and employment and less well-functioning markets and face serious risks to their economies’ fiscal sustainability. The findings of this note support calls for the comprehensive reform of fiscal policies, as well as of product and labour markets.fiscal policy, regulation, Nordic model, welfare state, efficiency, reform

What does European institutional integration tell us about trade integration?

This paper analyses trends in working time inthe euro area, in comparison with the US, over the period 1970 to 2004 and examines the causes and consequences of the observed changes. Between 1970 and 2004, a downward trend in average annual hours worked per worker can be observed for the euro area as a whole, all individual euro area countries and the United States. In contrast to the US, the euro area and a number of euro area countries also experienced a significant decline in annual hours worked per capita (“labour utilisation”) over the last three decades. Data reveal important disparities across countries –both in trends and levels. While some countries managed to reverse their downward trends inlabour utilisation in the 1980s and 1990s, the level of average hours worked per capita in 2004 remained significantly below their 1970 levels for all euro area countries for which data are available. From a policy perspective, falling annual average hours worked per worker or per capita are not a problem per se, ifthey reflect preferences. For example,increasing shares of voluntary part-time employment across many euro area countries, whilst increasing European employment rates, have contributed to the downward trend in average annual hours per worker. However, to the extent that low working hours are due to institutional features which create disincentives to work, such as high tax wedges and high unemployment benefits, or enforced reductions in working hours, these factors should be addressed.Annual hours of work, workingtime, labour utilisation, productivity, percapita income, institutions, working timelegislation, Europe and US, part-time work,preferences, labour costs, employment.

Cross-border labour mobility within an enlarged EU

This paper examines the potential for increased cross-border labour mobility within the EU-25 and considers the costs and benefits of any increase in labour mobility to both sending and receiving countries in the medium to long run. Evidence from previous EU enlargement experiences, academic studies, the existence of barriers to mobility within the EU and the economic determinants of migration all indicate a moderate potential for increased migrant flows. The magnitude of cross-border labour flow in the medium to long run will most likely be largely a function of the demand for migrants and the speed at which the EU-8 catches up economically with the EU-15. If broad-based economic growth and social development continues in the EU-8, labour migration will most likely decrease. In addition, faster population ageing in the EU-8 tends towards dampening migration flow from the new Member States in the medium term. In terms of costs and benefits, for the EU-8 countries labour migration, especially in the short run, may present a number of challenges. Emigration may tend to weigh disproportionally on the pool of young and educated workers, aggravating labour market bottlenecks in a number of EU-8 countries. For the EU-25 as a whole, cross-border labour mobility is likely to offer a number of advantages, by allowing a more efficient matching of workers‘ skills with job vacancies and facilitating the general upskilling of European workforces. The current restrictions on labour mobility from the EU-8 countries to the other EU member countries stand in contrast with one of the central principles of the EU – the free movement of labour. Furthermore, these restrictions may decrease the efficient use of labour resources in the face of demographic change and globalisation and hamper an important adjustment mechanism within EMU. Delaying the removal of these barriers may be costly for the EU-25 at a time when leaders are concerned about Europe‘s international competitiveness and may increase illegal work in a number of countries. Finally, it would not be beneficial for Europe to loose a significant part of the most agile and talented individuals from the new Member States to more traditional migration centres such as the US and Canada.

Part-time work in EU countries: labour market mobility, entry and exit

This paper looks at the role of part-time work in labour mobility for 11 European countries. We find some evidence of part-time work being used as a stepping stone into full-time employment, but for a small proportion of individuals (less than 5%). Part-time jobs are also found to be more frequently taken up as a means to enter the labour market than to leave it. Multinomial logit regression of the determinants of part-time work reveals household composition, past labour market history and country of residence as very important for both men and women in their decision to work part time. Random effects regression controlling for individual heterogeneity, and the comparison of results for Europe and the US, reveals that a significantly higher proportion of female workers in Europe prefer inactivity and a significantly lower percentage prefer full-time, over part-time employment, than in the US, with considerable variation across EU countries. JEL Classification: J21, J22, J16, J60full-time and part-time employment, gender, labour market entry and exit, Labour market mobility and flexibility, labour supply, non-employment, stepping stones, Unemployment

Mortgage indebtedness and household financial distress

Using comparable survey data from twelve European countries from 1994 to 2001 we investigate households’ attitudes towards mortgage indebtedness. We find that a given debt burden creates much higher distress in countries with fewer mortgage holders relative to countries where a significant part of households uses mortgage debt. This effect is net of ppp-adjusted income levels, various socioeconomic characteristics, housing traits, country-specific constant terms, and household unobserved heterogeneity. We show that households evaluate their own debt burden partly in comparison with the debt position of their peer group and in a way consistent with social stigma considerations which lessen in significance as markets expand. JEL Classification: D12, D14, G21credit markets, financial distress, Household finance, Mortgage debt, peer effects

What does European institutional integration tell us about trade integration?

This paper analyses trends in working time inthe euro area, in comparison with the US, over the period 1970 to 2004 and examines the causes and consequences of the observed changes. Between 1970 and 2004, a downward trend in average annual hours worked per worker can be observed for the euro area as a whole, all individual euro area countries and the United States. In contrast to the US, the euro area and a number of euro area countries also experienced a significant decline in annual hours worked per capita (“labour utilisation”) over the last three decades. Data reveal important disparities across countries –both in trends and levels. While some countries managed to reverse their downward trends inlabour utilisation in the 1980s and 1990s, the level of average hours worked per capita in 2004 remained significantly below their 1970 levels for all euro area countries for which data are available. From a policy perspective, falling annual average hours worked per worker or per capita are not a problem per se, ifthey reflect preferences. For example,increasing shares of voluntary part-time employment across many euro area countries, whilst increasing European employment rates, have contributed to the downward trend in average annual hours per worker. However, to the extent that low working hours are due to institutional features which create disincentives to work, such as high tax wedges and high unemployment benefits, or enforced reductions in working hours, these factors should be addressed

Institutional features of wage bargaining in 23 European countries, the US and Japan

This paper presents information on wage bargaining institutions, collected using a standardised questionnaire. Our data provide information from 1995 and 2006, for four sectors of activity and the aggregate economy, considering 23 European countries, plus the US and Japan. Main findings include a high degree of regulation in wage setting in most countries. Although union membership is low in many countries, union coverage is high and almost all countries also have some form of national minimum wage. Most countries negotiate wages on several levels, the sectoral level still being the most dominant, with an increasingly important role for bargaining at the firm level. The average length of collective bargaining agreements is found to lie between one and three years. Most agreements are strongly driven by developments in prices and eleven countries have some form of indexation mechanism which affects wages. Cluster analysis identifies three country groupings of wage-setting institutions. JEL Classification: J31, J38, J51, J58cluster analysis, indexation, institutions, trade union membership, wage bargaining

Mortgage indebtedness and household financial distress

Using comparable survey data from twelve European countries we investigate households' attitudes towards mortgage indebtedness. We find that a given debt burden creates much higher distress in Southern countries, France and Belgium, where fewer households have a mortgage outstanding relative to countries where a sizeable part of the population uses mortgage debt, like the UK, the Netherlands, and Denmark. This is the case after taking into account ppp-adjusted income levels, a rich set of socioeconomic characteristics, housing traits, country-specific constant terms, and household unobserved heterogeneity. We attribute part of this asymmetry to cross-country differences in the expansion of credit markets, which facilitate differential access to liquidity. Household's reported distress is also affected by excess indebtedness relative to the debt load of reference households, and crucially so in countries with less expanded mortgage markets. Thus it appears that households evaluate their own debt burden partly in comparison with the debt position of their peer group and in a way consistent with social stigma considerations which lessen in significance as markets expand. Households' assessment of a debt burden therefore tends to diminish in more expanded credit markets and this process can be reinforced by reference to other households in a growing pool of debt holders

Transitions in Labour Market Status in the EU

This paper presents information on labour market mobility in 23 EU countries, using Eurostat's Labour Force Survey (LFS) data over the period 1998-2008. More specifically, it discusses alternative measures of labour market churning; including the ease with which individuals can move between employment, unemployment and inactivity over time. The results suggest that the probability of remaining in the same labour market status between two consecutive periods is high for all countries. Nonetheless, transitions from unemployment and inactivity back into the labour market are relatively weak in the euro area and central eastern European EU (CEE EU) countries compared to Denmark and, particularly, Sweden. Moreover, comparisons of transition probabilities over time suggest that until the onset of the financial crisis the probability of remaining in unemployment over two consecutive periods decreased in Sweden, the euro area, and, to a lesser extent, Denmark, while it increased in the average CEE EU countries. At the same time, however, successful labour market entries (from outside the labour market) increased in the average CEE EU countries, Denmark and Sweden. On the basis of an index for labour markets turnover used in the paper (Shorrocks, 1987), labour markets in Spain, Luxemburg, the Netherlands, Denmark and Sweden are the most mobile on average, with these results mainly reflecting higher mobility of people below the age of 29, highly educated and female workers. We also find that mobility of all worker groups has generally increased over time in the euro area, Denmark and Sweden. Finally, we ask whether some of the observed changes in mobility can be broadly restraint to some macro explanatory factors, including part time and temporary employment, unemployment and structure indicators. The results provide a mixed picture, suggesting that the sense of mobility strongly varies across countries

Part-time work in EU countries: labour market mobility, entry and exit

This paper looks at the role of part-time work in labour mobility for 11 European countries. We find some evidence of part-time work being used as a stepping stone into full-time employment, but for a small proportion of individuals (less than 5%). Part-time jobs are also found to be more frequently taken up as a means to enter the labour market than to leave it. Multinomial logit regression of the determinants of part-time work reveals household composition, past labour market history and country of residence as very important for both men and women in their decision to work part time. Random effects regression controlling for individual heterogeneity, and the comparison of results for Europe and the US, reveals that a significantly higher proportion of female workers in Europe prefer inactivity and a significantly lower percentage prefer full-time, over part-time employment, than in the US, with considerable variation across EU countries