Innovation and Productivity Across Four European Countries

This paper compares the role innovation plays in productivityacross four European countries, France, Germany, Spain, andthe UK, using firm-level data from the internationally harmonizedCommunity Innovation Surveys (CIS3). Despite a considerablenumber of national firm-level studies analysing this relationship,cross-country comparisons using micro data are still rare. Weapply a structural model that describes the link between R&Dexpenditure, innovation output, and productivity (CDM model).Our econometric results suggest that overall the systems drivinginnovation and productivity are remarkably similar across thesefour countries, although we also find interesting differences,particularly in the variation in productivity that is associatedwith more or less innovative activities. Footnotes ¹ E-mail addresses: rgriffith{at}ifs.org.uk; ehuergo{at}ccee.ucm.es;jacques.mairesse{at}ensae.fr; b.peters{at}zew.de     

Job Protection: The Macho Hypothesis

This paper shows that the stringency of employment protectionin Mediterranean countries can be partly explained by culturalvalues embedded in religion. Both the security provided by thislegislation and its redistributive effects in favour of themale breadwinner insiders fit into the framework of Mediterraneanreligions. First, international individual surveys allow usto document that Catholics and Muslims are more likely to agreewith traditional gender division of work than Protestants andthe non-religious. Second, we develop a political economy modelpredicting that employment protection should be more stringentin countries where there is a larger share of insiders supportiveof traditional family values. We then show that this predictionis supported by empirical evidence on OECD countries over theperiod 1970–99. Footnotes ¹ E-mail addresses: yann.algan{at}ens.fr; cahuc{at}ensae.fr     

Measuring and Understanding Productivity in UK Market Services

Many productivity studies, if they cover the service sector,commonly enter a caveat that the data are uncertain or justlook at manufacturing. This paper attempts to clarify what UKmarket-service-sector data are available, whether they shouldbe treated as inaccurate, and what conceptual problems mightmake measuring service-sector output so hard. Our overall conclusionis that most problems surround financial intermediation andbusiness services. In financial intermediation, national accountsconventions and adjustments make the output data very hard tointerpret. In business services many of the output measuresare employment based. Elsewhere, for example, retail and wholesaletrade, transport, and hotels and restaurants, the main problemis, in practice, lack of collected deflators. Footnotes ¹ E-mail addresses: g.a.crespi{at}sussex.ac.uk; chiara.criscuolo{at}ons.gsi.gov.uk;j.e.haskel{at}qmul.ac.uk; d.hawkes{at}ioe.ac.uk     

Prudence or Profligacy: Deficits, Debt, and Fiscal Consolidation

Over the last quarter century, public finances have been underpressure in most OECD countries as deficits and debts rose underthe pressure of relatively slow growth and high interest rates.This, in turn, has affected the welfare state, since effortsat containing deficits have often been concentrated on publicexpenditure. Much of the literature argues that this is desirable,since curbing deficits via tax increases seldom succeeds. Amedium-term survey of OECD country experience suggests a lessclear-cut conclusion. In a number of countries which were ableto curb debt/GDP ratios, the bulk of the adjustment did, indeed,come from spending cuts (but was, also, in some cases helpedby rapid growth and/or currency depreciation). In several, however,tax increases also appear to have succeeded in reducing deficitsand debt. Footnotes ¹ E-mail addresses: andrea.boltho{at}magd.ox.ac.uk; andrew.glyn{at}economics.oxford.ac.uk     

Fiscal Stabilization Policy and Fiscal Institutions

In this paper we analyse counter-cyclical fiscal policy withinthe context of a microfounded analysis of business-cycle stabilization.We show that tax and spending instruments can have a usefulcounter-cyclical role, even after allowing for the distortionarynature of the instruments and the need for debt sustainability.A critical barrier to the use of fiscal instruments may be politicaleconomy concerns, and we survey recent suggestions involvingalternative fiscal policy institutions. Footnotes ¹ E-mail addresses: c.b.leith{at}socsci.gla.ac.uk; s.wren-lewis{at}exeter.ac.uk     

Regulatory Policy: OECD Experience and Evidence

In the past 20 years a key topic of public-sector reform inOECD countries has been the emergence of regulatory policy.During this period, the nature of regulation has undergone profoundand rapid change. This paper reviews the development of regulatorypolicy in OECD countries over the last quarter-century. It identifiesa range of tools and institutions that have been used by OECDcountries to develop high-quality regulation. The analysis attemptsto show that while there is considerable commonality on broadobjectives of regulatory policy, considerably diversity remainsin the implementation of regulatory policy across OECD countries. Footnotes ¹ E-mail address: nikolai.malyshev{at}oecd.org     

Welfare States in Hard Times

Welfare states have been subject to a host of conflicting pressuresfrom high unemployment, rising income inequality, populationaging, tax competition, rising budget deficits and debts, slowgrowth, and fears that economic dynamism was being stifled byexcessive taxes and benefit levels. Nevertheless total spendingon welfare has edged up in many countries and cuts in ratesof benefit have generally been fairly modest. The generosityof the welfare state has an enormous influence on poverty andincome inequality and still appears to be popular in most ofEurope. Suggestions that society would benefit from reducedworking time must reckon with the fact that it is paid workwhich generates the tax revenue required to fund welfare spending. Footnotes ¹ E-mail addresses: donatella.gatti{at}cepremap.cnrs.fr; andrew.glyn{at}economics.oxford.ac.uk     

Welfare-State Retrenchment: The Partisan Effect Revisited

This paper aims to shed light on the role of the ‘ideology’of political parties in shaping the evolution of the welfarestate in 18 developed democracies, by providing empirical findingson the determinants of social-programme entitlements and socialspending over the period 1981–99. The paper shows thatstructural change is a major determinant of the extent of socialprotection. Our results suggest that overall spending is drivenup by structural change. On the other hand, strong structuralchange has a negative influence on welfare entitlements measuredby the net rate of sickness insurance. Partisan influence playsan important role in the dynamics of the welfare state. Left-winggovernments strengthen the positive effect of shocks on aggregatesocial expenditure, while right-wing governments undertake evenstronger cutbacks in replacement rates as a reaction to structuralchange. Footnotes ¹ E-mail addresses: bruno.amable{at}ens.fr; donatella.gatti{at}cepremap.cnrs.fr;jan.schumacher{at}wiwi.uni-regensburg.de     

Fiscal Policy in Emu: Towards a Sustainability and Growth Pact?

This paper takes stock of the academic and policy discussionson the fiscal institutions of EMU, confronts the framework inplace with what is known of the desirable properties of fiscalpolicy in a monetary union, and discusses possible improvements.We start with a discussion of three requirements for the fiscalframework of a monetary union: it should be conducive to publicfinance sustainability, leave room for stabilization at thenational level, and encourage structural reform. We then examinehow the Stability and Growth Pact (SGP) measures up to theserequirements and find that it has mostly failed on all threeaccounts. Whether the 2005 reform of the SGP fixes those deficienciesremains an open issue. To this end, we propose five buildingblocks towards an effective SGP: a better concept of sustainability;harmonized general government balance sheets; appropriate targets;refined procedures; and better institutions. Footnotes ¹ E-mail addresses: benoit.coeure{at}free.fr; jpf{at}bruegel.org     

The Economics of Pensions

This paper sets out the economic analytics of pensions. Afterintroductory discussion, successive sections consider the effectsof different pension arrangements on labour markets, on nationalsavings and growth, and on the distribution of burdens and benefits.These areas are controversial and politically highly salient.While we are open about expressing our own views, the main purposeof the paper is to set out the analytical process by which wereach them, to enable readers to form their own conclusions. Footnotes ¹ E-mail addresses: n.barr{at}lse.ac.uk; pdiamond{at}mit.edu     

The Interactions between Fiscal Policy and Monetary Policy

This paper studies the interactions of fiscal policy and monetarypolicy when they stabilize a single economy against shocks ina dynamic setting. If both policy-makers are benevolent, then,in our model, the best outcome is achieved when monetary policydoes nearly all of the stabilization. If the monetary authoritiesare benevolent, but the fiscal authority discounts the future,or aims for an excessive level of output, then a Nash equilibriumwill result in large welfare losses: after an inflation shockthere will be excessively tight monetary policy, excessive fiscalexpansion, and a rapid accumulation of public debt. However,if, in these circumstances, there is a regime of fiscal leadership,then the outcome will be very nearly as good as when both policy-makersare benevolent. Footnotes ¹ E-mail addresses: t.kirsanova{at}exeter.ac.uk; jari.stehn{at}bnc.ox.ac.uk;david.vines{at}economics.oxford.ac.uk     

From Skills Revolution to Productivity Miracle--Not as easy as it Sounds?

This article surveys the potential impact of skill on productivity.It opens with a review of the utility of productivity as a measureof systemic economic performance, and then goes on to explorethe oft-assumed close and strong relationship between skillsand productivity. The importance of other factors and typesof investment is stressed. These complementary elements maybe at least as important as skill in boosting performance, andtheir absence may negate the impact of public investment ineducation and training. The ability of economic developmentpolicy, particularly as it relates to the Regional DevelopmentAgencies, to address skills and economic development is assessed,and questions are raised about what type and level of skillmight have the largest impact on economic performance. In conclusion,we discuss the demands that new policy approaches are makingupon the machinery and personnel of government. Footnotes ¹ E-mail addresses: keepej{at}cardiff.ac.uk; ken.mayhew{at}pmb.ox.ac.uk;paynej3{at}cardiff.ac.uk     

Human Resource Management Policies and Productivity: New Evidence from An Econometric Case Study

First we distinguish various approaches used by economists toassess the impact of human resource management practices onproductivity and then we briefly review and illustrate studiesthat represent different approaches. In the main part of thepaper we illustrate the econometric case study method, by usingnew data to analyse a case from retail trade and by emulatingan approach used in an earlier study. Consistent with theorywe find that when employees have opportunities to participate,and to receive appropriate information and pertinent rewards,a one standard deviation increase of the first principal componentscore would increase productivity by 1 per cent. Our findingsimply that there are benefits to innovative work practices,even in settings where employees do simple tasks and employeesare relatively low-skilled. Since our findings are similar tothose contained in a previous study, our results also indicatethe value of replication studies. Footnotes ¹ E-mail addresses: djones{at}hamilton.edu; panu.kalmi{at}hse.fi; antti.kauhanen{at}hse.fi     

Pension Challenges and Pension Reforms in Oecd Countries

The 30 OECD member countries have very diverse pension systems.Current old-age public pension spending varies between lessthan 1 and more than 10 per cent of gross domestic product (GDP).Public spending on pensions per person aged 65 or over variesfrom less than 15 to more than 40 per cent of economy-wide GDPper head. For workers entering the labour market today, thetarget pension from all mandatory sources for an average earnervaries between 30 and 100 per cent of individual earnings. Recentpension reforms have a number of common themes. First, pensioneligibility conditions have been tightened. Second, the indexationof pensions in payment has become less generous. Third, somepension schemes link benefit levels to changes in life expectancy.Finally, a number of countries have introduced defined-contributionpensions: privately managed schemes where the pension benefitdepends on contributions and investment returns. Footnotes ¹ E-mail addresses: peter.whiteford{at}oecd.org; edward.whitehouse{at}oecd.org     

Why is Productivity so Dispersed?

Many papers have documented wide variations in productivityeven in narrowly defined industries. Some have argued that thisprimarily reflects measurement problems due, for example, tocomparing across different products. Others argue that thisreflects persistent differences in performance due, for example,to management. This paper looks at productivity differencesnot within an industry but within a firm. We use data on productivityof different branches within lines of business of a major UK-basedwholesaler. Using these productivity data for comparisons is,we argue, more likely to compare like with like than comparingbetween firms. We document sustained differences in productivityeven between branches within the same line of business. We alsodiscuss the extent to which they are correlated with differencesin management and find that such differences ‘account’for around 40 per cent of the difference in productivity. Footnotes ¹ E-mail addresses: r.griffith{at}ifs.org.uk; j.e.haskel{at}qmul.ac.uk;a.neely{at}cranfield.ac.uk     

Risks at Work: The Demand and Supply Sides of Government Redistribution

To comprehend how the welfare state adjusts to economic shocksit is important to get a handle on both the genesis of popularpreferences and the institutional incentives for governmentsto respond to these preferences. This paper attempts to do both,using a general theoretical framework and detailed data at boththe individual and national levels. In a first step, we focuson how risk exposure and income are related to preferences forredistribution. To test our hypotheses, we extract detailedrisk-exposure measures from labour-force surveys and marry themto cross-national opinion survey data. Results from analysisof these data attest to the great importance of risks withinthe labour market in shaping popular preferences for redistributiveefforts by governments. In a second step, we turn our attentionto the supply side of government redistribution. Institutions,we argue, mediate governments' reactions to redistributionaldemands following economic shocks. Using time-series cross-countrydata, we demonstrate how national training systems, and electoralinstitutions, as well as partisanship, shape government responses. Footnotes ¹ E-mail addresses: tom{at}wz-berlin.de; iversen{at}fas.harvard.edu;pr9{at}duke.edu     

Retirement in the UK

In common with other OECD countries, the UK experienced morethan two decades of declining labour-market activity among oldermen from the 1970s to the early 1990s, a trend that has onlyrecently shown signs of being reversed. Retirement decisionsare heavily shaped by institutional context and in the UK thishas led to there being two distinct groups with very different‘retirement’ experiences. At the top of the wealthdistribution, early retirement has typically been influencedby private, occupational pensions; at the bottom of the wealthdistribution individuals are even more likely to be not workingin their 50s, but do not typically define themselves as retired,and draw on income support, or more usually, disability benefits.Policy-makers keen to increase effective retirement ages willneed to consider the very different circumstances of these twogroups. Footnotes ¹ E-mail addresses: j.banks{at}ifs.org.uk; sarah.smith{at}bristol.ac.uk     

Improving Productivity--Opening the Black Box

Hourly productivity levels in the UK still remain behind thosein some competitor countries. The government devotes much policyattention to enhancing productivity and continues to emphasiseits five drivers—investment, innovation, skills, enterprise,and competition. This article argues that it is investment broadlydefined that is the key to sustained productivity improvement.The emphasis should be on improving productivity simultaneouslywith improving the quality of production. Only thus will thegains be widely shared. In achieving these aims there are twoprerequisites for policy-makers. The first is to ensure bettercoordination of policy than appears to be currently achievedby the present departmental structures in Whitehall. The secondis to recognize fully the long and complex chain of causationthat can be triggered by pulling on one policy lever. Such complexitycan only be fully understood by more research on what actuallygoes on inside the black box of the organization. Footnotes ¹ E-mail addresses: ken.mayhew{at}ox.ac.uk; a.neely{at}cranfield.ac.uk     

Network Regulation

This paper assesses how price regulation for energy, water,telecommunications, and rail networks has developed in the twodecades since incentive regulation was introduced. Regulationis necessary because Coasean bargaining is unlikely to produceefficient outcomes, and because the consumer and the firm haverelationship-specific capital and are unable to write long-termcontracts. Incentive regulation has been successful at promotingoperating efficiency in the UK and elsewhere. Incentive regulationhas, so far, also been successful at promoting investment, butsome challenges remain for regulators and policy-makers. Therelationship between the required cost of capital and the extentto which prices are allowed to track costs is explored, andthe implications of the recent large increases in debt-to-equityratios for regulation is discussed. Footnotes ¹ E-mail address: simon.cowan{at}economics.oxford.ac.uk     

The Rationale for Occupational Pensions

Employers and employees have no incentive to include pensionsas part of employment contracts unless the pension completesa missing market, or ameliorates an imperfection in existingcapital or labour markets. We examine the influence on the choiceand design of occupational pensions of capital- and labour-marketimperfections. In capital markets, we focus on basis risks,taxation, employer default risks, transactions costs, portfoliorestrictions, and liquidity constraints. Aspects of labour marketsaffecting occupational pensions may be the presence of firm-specifichuman capital, asymmetric information between firms and potentialhires, the presence of moral hazard, and internal labour marketsin firms which cause employers to attempt to control the retirementbehaviour of workers. The implications of this analysis of occupationalpensions for public policy towards pensions are briefly examined. Footnotes ¹ E-mail address: dg.mccarthy{at}imperial.ac.uk