Measuring and Managing the Costs of Red Tape: A Review of Recent Policy Developments

Over the last few years, red tape has come to be identifiedas an important policy area, and there has been rapid and relativelywidespread adoption—in one form or another—of aDutch-developed set of reforms aimed at significantly reducingthe costs of compliance with government-imposed obligationsto provide information (which have come to be referred to as‘administrative burdens’). This paper begins byexamining the characteristics of the policy problems that thesereforms are intended to address, and highlighting some of thechallenges that the reforms can be expected to face. The Dutch-developedapproach, and the UK adaptation of it, are then described, andspecific ways in which the reforms have sought to influenceinformation and incentive conditions—so as to generatereductions in administrative burdens—are assessed. Footnotes ¹ E-mail address: tim.keyworth{at}rpieurope.org     

Management Practices, Work--L ife Balance, and Productivity: A Review of Some Recent Evidence

Increasing product-market competition is believed to be a drivingforce behind higher productivity. However, even those criticsof globalization who accept this argument claim that there isa hard trade-off because tougher competition comes at the priceof reducing work—life balance (WLB). Optimists, by contrast,argue that competition can spur better WLB practices and thereforehigher productivity, so there is a ‘win—win’situation. To address this issue we use an innovative surveytool to collect the first international data on management practicesand WLB practices, surveying 732 medium-sized manufacturingfirms in the USA, France, Germany, and the UK. We find thatthe USA has the best management practices but the worst work—lifebalance. When we look within countries, however, we reject thepessimistic ‘trade-off’ model. First, WLB outcomesare significantly associated with better management, so thatwell-run firms are both more productive and offer better conditionsfor their employees. Second, tougher competition increases averagemanagement quality but does not negatively affect employees'working environment. As with many other studies, better WLBpractices are associated with significantly higher productivity.This relationship disappears, however, after controlling forthe overall quality of management. Footnotes ¹ E-mail addresses: nbloom{at}stanford.edu; j.vanreenen{at}lse.ac.uk     

Monetary and Fiscal Theories of the Price Level: The Irreconcilable Differences

The fiscal theory of the price level (FTPL) has attracted muchattention but disagreement remains concerning its defining characteristics.Some writers have emphasized implications regarding interest-ratepegging and determinacy of rational expectations solutions,whereas others have stressed its capacity to generate equilibriain which price-level trajectories mimic those of bonds and differdrastically from those of money supplies. We argue that theFTPL attained prominence precisely because it appeared to providea theory whose implications differ greatly from conventionalmonetary analysis; accordingly we review monetarist writingsto identify the primary distinctions. In addition, we reviewrecent findings concerning learnability—and thereforeplausibility—of competing rational expectations equilibria.These indicate that when FTPL and monetarist equilibria differ,the latter are more plausible in the vast majority of cases.Under Ricardian assumptions, necessary for clear distinctions,theoretical analysis indicates that fiscal and monetary coordinationis not necessary for macroeconomic stability. Footnotes ¹ E-mail addresses: bmccallum{at}cmu.edu; edward.nelson{at}stls.frb.org     

The Macroeconomic Role of Fiscal Policy

This article examines the new consensus that fiscal policy shouldhave no macroeconomic role in ‘flexible inflation targeting’regimes. There is little basis for this presumption. Fiscalpolicy remains important in setting the policy mix and in managingshocks and imbalances. The credibility of an inflation-targetingregime should be enhanced rather than reduced if fiscal policyplays its proper role. It is true, nevertheless, that the costsof focusing fiscal policy narrowly on public-sector concernsmay not be very great, most of the time. However, when interestrates cannot be used, the role of fiscal policy must be different.With interest rates at their lower bound of zero, there is noplausible alternative. For asymmetric shocks and adjustmentsin EMU, fiscal policy needs, ideally, to substitute for theinterest-rate policy reaction function of the consensus, butthe difficulties are very great. We suggest a policy focus onreal exchange rates as a way of resolving some of the dilemmas.There is a serious danger that orthodox views about fiscal policy,drawn from the consensus, will be inappropriately applied, especiallyin Europe. Footnotes ¹ E-mail addresses: christopher.allsopp{at}new.ox.ac.uk; david.vines{at}economics.oxford.ac.uk     

Sons, Daughters, and Parental Behaviour

The prevalence of son preference and its implications for familybehaviour in developing countries have received a great dealof scholarly attention, but child-gender bias is believed tobe empirically unimportant in wealthy, non-traditional societies.Studies by sociologists and psychologists during the past 30years, however, have documented consistent discrepancies betweenthe behaviour of parents of sons and parents of daughters—boystend to increase marital stability and marital satisfactionrelative to girls, and fathers spend more time with, and aremore involved with, sons than daughters. In recent years, economistshave begun to contribute to the child-gender literature, re-examiningthe effects of sons and daughters on family structure and parentalinvolvement with larger samples and greater concern for possiblesources of selection bias. Other economic outcomes, such asmarket work and earnings, have also been studied, and some investigatorshave exploited the randomness of child gender as a source ofexogenous variation in parental behaviour. In general, recentresults suggest that child gender does affect family stabilityand the time allocation of parents, but it is not clear whetherthese responses reflect parental preferences for boys ratherthan girls or differences in the constraints parents face. Footnotes ¹ E-mail address: lundberg{at}u.washington.edu     

Outsourcing and Offshoring: Implications for Productivity of Business Services

This paper reviews the implications of outsourcing and offshoringfor the productivity of business services in the UK. Officialstatistics indicate that business-service productivity has grownby over 20 per cent in the last 7 years at the same time asemployment grew by 20 per cent. The paper considers possiblefactors that account for the simultaneous growth of employmentand productivity. First, we discuss outsourcing and offshoring,and their role in enhancing productivity through greater specialization,standardization, and consolidation of business processes, anda shift to higher value-added services. Outsourcing of businessservices is interpreted as part of corporate restructuring,namely as the unbundling of corporate functions as well as verticaldisintegration. Second, as some services become more like products,both low-skilled and high-skilled jobs are subjected to productivitygrowth through standardization and digitization. It is argued,however, that the future of business-service productivity ison a knife-edge, depending on the mix of two sources of productivityenhancement—namely greater standardization and capturingvalue from customized solutions. Footnotes ¹ E-mail addresses: mari.sako{at}sbs.ox.ac.uk     

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     

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     

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     

The Swedish Experience with Pension Reform

Sweden is one of few countries in Europe to have introduceda comprehensive pension reform. In 1998, Sweden passed legislationthat transformed its public pension system to a notional defined-contribution(NDC) plan— that is, a defined-contribution plan financedon a pay-as-you-go basis. In addition, a second tier of fundedindividual accounts was introduced. The reform had broad politicalsupport with more than 80 per cent of the votes in parliament.This paper discusses the trends in retirement in Sweden andassesses the experience with pension reform. The objective wasto design a fiscally sustainable system tied to economic growthwith a clear link between contributions and benefits. We discussthe challenges in meeting this goal, the extent to which theSwedish reform has succeeded, and how the system affects beneficiaries.The paper evaluates the experience of the individual fundedaccounts to date and concludes with an outlook for the future. Footnotes ¹ E-mail address: annika.sunden{at}sofi.su.se     

Regulation by Prices, Quantities, or Both: A Review of Instrument Choice

Choosing appropriate policy instruments is an important partof successful regulation. Once objectives are agreed and suitabletargets adopted, policy-makers can employ command-and-controlregulation and/or economic instruments, and choose between fixinga price or a quantity. This paper examines the relative advantagesof price, quantity, and hybrid instruments according to: theirefficiency under uncertainty; the trade-off between crediblecommitment and flexibility; implementation; international considerations;and political economy. Various illustrations of the theory areprovided, with two detailed applications to climate change andtransport policy, specifically congestion and ‘safetypricing’. Footnotes ¹ E-mail address: cameron.hepburn{at}economics.ox.ac.uk     

Will Social Welfare Expenditures Survive Tax Competition?

Increasing economic openness creates demands for social welfareprogrammes designed to cushion the impact of economic changes,but may also encourage governments to reduce tax rates to attractmobile economic resources. Competitive tax reductions couldthen prevent governments from being able to finance significantwelfare spending. Alternatively, economic globalization mightimprove the ability of governments to afford social welfareprogrammes—and several considerations point in this direction.First, taxes on internationally mobile activity represent onlysmall fractions of total revenue collections; personal incometaxes, value-added taxes, and social insurance contributionsfinance most social welfare spending. Second, internationalcompetition need not reduce taxes, and indeed, over the past25 years, corporate tax collections have remained high as fractionsof GDP and total taxes. Third, the vitality of a country's economylargely determines its level of social spending. To the extentthat incomes rise as a result, greater economic openness shouldstrengthen provision of social welfare. Footnotes ¹ E-mail address: jrhines{at}umich.edu     

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     

Vocational Training and Gender: Wages and Occupational Mobility among Young Workers

This paper investigates the relationship between the genderwage gap, the choice of training occupation, and occupationalmobility. We use longitudinal data for young workers with apprenticeshiptraining in West Germany. Workers make occupational career choicesearly in their careers and women and men pursue very differentoccupational careers. We reconsider whether through occupationalsegregation women are locked in low-wage careers or whetherthey can move up to higher wage paths through mobility. We furthermoreinvestigate whether patterns have changed across cohorts duringthe period 1975–2001 and whether effects vary across thedistribution. The main results are, first, while there existsa persistent gender wage gap over experience, the gap has decreasedover time. Second, in the lower part of the wage distribution,the gap is highest and it increases with experience. Third,occupational mobility is lower for women than for men and thewage gains due to occupational mobility are higher for men thanfor women, especially in the lower part of the wage distribution.We conclude that occupational mobility has reduced the genderwage gap, but lock-in effects are still stronger for women comparedto men. Footnotes ¹ E-mail addresses: fitzenberger{at}wiwi.uni-frankfurt.de; astrid.kunze{at}nhh.no     

The Assessment: Gender and the Life Cycle

This assessment is an introduction to the Oxford Review of EconomicPolicy's issue on gender and the life cycle. It sets the stageby providing background information on various dimensions ofgender differences, pointing out differences across countriesas well as over time, and relates this evidence to the papersthat follow. It further briefly reviews the articles in theissue and puts them into context. Footnotes ¹ E-mail address: c.dustmann{at}ucl.ac.uk     

Redesigning Regulation of Pensions and Other Financial Products

We observe that financial regulation is ever-growing, with thelatest area to experience increased supervisory attention beingpensions. Yet this has not made the financial world or consumerssafer, and for pensions in particular there are unexpected andundesired consequences. We explore the current policy approachto supervision, which is ‘bottom up’, i.e. assessmentand regulation of individual institutions, with the aim ofmakingthe financial system safe by making each institution safe. Weshow that this is both damaging (because it stifles innovation)and does not work (because risk will always be squeezed fromthe regulated institutions to the less regulated and less seen).Instead, we advocate a ‘top-down’ approach, whichfocuses on making the system safe first. We conclude that onceyou have made systems safe, detailed supervision of individualinstitutions is less necessary, thus reducing the burden ofsupervision. We believe that this approach will lead to a moresuitable and diverse treatment of different risks that willincrease both systemic and consumer safety. ‘If you haveten thousand regulations you destroy all respect for the law’,Winston Churchill (1931). ‘The ultimate result of shieldingmen from the effects of folly is to fill the world with fools’,Herbert Spencer (1891). Footnotes ¹ E-mail addresses: n.barr{at}lse.ac.uk; john_nugee{at}ssga.com     

Regulatory Reform, Capture, and the Regulatory Burden

This paper provides a critique of broad aggregate proposalsto reduce the regulatory burden. It argues that the public debateabout regulatory reform and red tape is loose and general, withlittle regard for the complex ways in which regulation imposescosts and benefits on the economy. Although there are theoreticalreasons to expect regulation to be in excess supply, there islittle empirical analysis to link aggregate regulation withproductivity and economic growth. Regulation is itself a publicgood, and many aspects of economic efficiency require regulationto address market failures. The main efficiency issues are betteraddressed through a disaggregated approach, focusing on when,where, and how to regulate, rather than on crude aggregate estimatesof the total burden. The design of regulation needs to takeaccount of regulatory capture, and it is argued that market-basedinstruments and independent regulatory bodies tend to reducethe scope for capture. The incentives and employment rules governingregulatory institutions are also discussed. In ignoring thesedisaggregated regulatory design problems, crude aggregate targetsfor the reduction of regulation, and rules such as ‘onein, one out’ may be counter-productive. Footnotes ¹ E-mail address: dieter{at}dhelm.co.uk     

Is Fiscal Policy Poised for a Comeback?

For several decades, discretionary fiscal policy has been indisrepute. Most economists viewed it as unnecessary, becausemonetary policy was up to the job of stabilizing the economy.Economists also viewed fiscal policy as too clumsy to deal withthe relatively short recessions that became the post-war norm.But the experience of Japan and the near-Japan experience ofthe United States in 2001–3 have renewed some of the oldcase for fiscal policy. Low-interest environments in which monetarypolicy becomes ineffective turn out to be a real danger, nota myth. Economic slumps that last for a number of years, offeringample time to implement fiscal expansion, also turn out to bepossible. As a result, the case for fiscal policy made by thefirst generation of Keynesians has experienced a real revival. Footnotes ¹ E-mail address: pkrugman{at}princeton.edu     

Gender and Student Achievement in English Schools

The widening gap between the average educational achievementof boys and girls has been the subject of much discussion. Thisgap is especially controversial for students taking nationalexams at the end of their compulsory education. However, thegender gap is also apparent at earlier and at later stages ofeducation. In this paper, we analyse changes over time in thegender achievement gap at the different stages of compulsoryeducation in English schools. We first use a combination ofdata sources to paint a picture of how gender gaps have evolvedover time and in what context they are most marked. Then weconsider possible explanations for the observed gender gaps.We look at the relevance of school inputs, teaching practice,and the examination system for explaining the gender gap. Wealso discuss the potential influence of wider social and economicchanges as reflected, for example, in the much higher educationlevels of mothers relative to those of previous generations.Analysis of this issue is important in the context of researchon the gender wage gap. However, it is also raises policy-relevantissues in relation to whether changes in the school system caneffect a change in the gender gap in educational achievement. Footnotes ¹ E-mail addresses: s.machin{at}ucl.ac.uk, s.mcnally1{at}lse.ac.uk     

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