Dr. Jungyoll Yun(Professor, Ewha Womans University)
Measures and Policies to Enhance Labor Market Flexibility in Roma-nia
2
Overview of Romanian Economy
▶Maintaining relatively high growth before financial crisis (esp. af-ter 2002)
: domestic demand and foreign K. inflows
▶Sluggish Growth after Crisis
=> Need momentum for sustainable growth
3
GDP Growth
4
KSP with Romania
▶Policy Suggestions focusing on Human Resource Development
our experiences of crisis management
our efforts for structural reforms (since early 90’s)
▶Policy Objectives of KSP
Reducing youth and long-term U.
Inducing emigrants to return
▶Policy Tools of KSP
LM flexibility
ALMP
Government Incentives
5
KSP with Romania
6
Labor Market in Romania (I)
▶Relatively lower employment rate
Relatively lower unemployment rate
=> Relatively lower Participation Rate
▶Relatively High
Youth Unemployment Rate
Long-Term Unemployment Rate
7
Employment Rate
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201158
60
62
64
66
68
70
72
EUROM
8
Unemployment Rate
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
2
4
6
8
10
12
EUROM
9
Labor Force Participation Rate
2005 2006 2007 2008 2009 2010 201150.0
53.0
56.0
59.0
62.0
65.0
68.0
71.0
74.0
77.0
80.0
EUROM
10
Long-term Unemployment Rate (Relative: u-long/u)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
0.1
0.2
0.3
0.4
0.5
0.6
0.7
EUROM
11
Youth Unemployment (Relative: u-youth/u)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
0.5
1
1.5
2
2.5
3
3.5
EUROM
12
Causes for Low Rate of Employment & High Rate of youth and Long-term Unemployment
▶Large Size of Outflows of High-Ed. Young Workers
▶LM Rigidity for Temporary and Part-time Employment
13
Effects of LM Flexibility
▶No clear relationship between flexibility and (un)employment
* open LM
▶LM rigidity
=> higher long-term unemployment and
lower turnover rate (OECD 2004)
higher youth unemployment
(Nickell 1997)
lower FDI
14
LM Rigidity (EPL Index) of Romania
15
EPL in Romania
▶EPL index has been reduced over years
3.2 (2003) => 2.8 (2005)
3.0 for non-regular
4.8 for collective redundancies
▶2011
Reduced further
* Changes in EPL for Temporary Emp.
and for Collective Redundancies
Not accompanied by changes in LM structure
(turnover rate, portion of temporary employment)
16
Vacancy Rate
2009Q32009Q42010Q12010Q22010Q32010Q42011Q12011Q22011Q32011Q42012Q12012Q20
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
EUROM
17
Temporary Employment (Relative)
2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
EUROM
18
LM Flexibility in Romania and Korea
Regular Temporary Collective Total
2003 3.2
2005 2.2 2.9 4.4 2.8
20011) (1.8) (2.0) (3.4) (2.2)
Korea(2003) 2.4 1.2(2.4)2) 1.9 2.0
Source: OECD(2004)1) EPL index values for 2011 are the ones estimated by consultants2) EPL index for temporary employment prior to crisis
19
LM Flexibility in Korea
▶More flexible After Crisis
Especially for Temporary Employment
Introducing Collective Redundancies
Little Changes for Regular Employment
▶Substantial Increase in Non-regular Employment
Peaked at 50% during early 2000’s
before it has recently been lowered
Too flexible for temporary employment
20
LM Flexibility and FDI
▶Non-linear relationship (Parcon (2008))
FDI is increasing in EPL when EPL is
low <= Productivity Effect
FDI is decreasing in EPL when EPL is
high <= Cost Effect
▶High Level of EPL and Low Level of FDI in Rom.
=> Need to enhance flexibility
to induce FDI inflow into Romania
21
LM Flexibility and FDI
Romania at High EPL and Low FDI
0 EPL
FDI
22
FDI (% of GDP)
2004 2005 2006 2007 2008 2009 2010 2011
-1
0
1
2
3
4
5
EUROM
23
LM Flexibility and Employment
▶Increasing LM flexibility for Temporary Employ-ment and Collective Redundancies
=>Increase domestic youth employment
Facilitate returning of emigrants
(Directly and through its effect upon FDI)
24
How to Enhance LM Flexibility
▶Social Protection
Flexicurity
▶Social Dialogue (Labor-Management-Gov’t)
: Economic and Social Development C.
25
EPL VS. Social Protection
▶Lower social protection for the unemployed
=> stronger employment protection
▶Expanding social protection
=> Reduced burden of LM Reform
for Labor
26
A trade-off between EPL and Unemployment
27
Social Protection Expenditure (% of GDP)
2005 2006 2007 2008 20090
5
10
15
20
25
30
35
EUROM
SP
year
Source: Eurostat
28
People at Risk of Poverty (%)
Source: Eurostat
2005 2006 2007 2008 2009 2010 2011
Total populationEU
- -44,823.9
42,422.8
40,922.4
39,722.5
38,423.4
Unemployed personsEU
- -71,663.8
71,864.3
72,263.5
73,363.8
73,065.2
- -
29
Expansion of SP Against Unemployment in Korea
Jab Stabilization ProgramJab Training ProgramUnemployment Insurance Bene-fit
(year)
20
40
60
80
100
120
140
160
(Million US$)
Source: Korea Labor Institute (2005)
30
Social Dialogue (Romania)
▶The Economic and Social Council (ESC)
Social Consultation for Fair Allocation of Burdens
Inducing Parties to Actively Participate
in Gov’t Policies (Enhancing Enforceability)
▶Development of ESC (3 Stages)
1st Stage : 1990-6
Strong Union and No Employers’ Org.
2nd Stage : - 2008
Economic Growth and Strong Union
3rd Stage : 2008 –
Economic Crisis and Weakened Union
31
Social Dialogue in Korea
▶Economic and Social Development Commission (ESDC)
Founded during the crisis
Effective by the crisis
▶‘Social Pact’
Reduction in EPL
Expansion of SP against Unemployment
Others: Work-hours Reduction
Strengthening Trade Unionism
32
ESC for LM Reform
▶Economic Crisis and Establishment of Employers’ Org.
=> favorable environment for LM Reform
: Changes in Labor Code in 2011
▶Fair Allocation of Burden bet. U and E
=> Larger Contribution of E to Social
Protection Expansion in return for More
LM flexibility
▶Enhance Enforceability
33
Conclusion (Policy Suggestions) I
▶Increasing LM flexibility (esp. for Tem. and Part-T. employment):
Reduce long-term & youth unemployment
(and possibly total unemployment)
(directly or through the increase of FDI inflow)
34
Conclusion (Policy Suggestions) II
▶To effectively reduce employment protection,
Increase SP expenditure for Unemployed
Social Dialogue (ESC) for LM Reform
(changes in labor laws for LM flexibility)
through ‘Social Pact’
35
Discussion
▶Limitations
Relatively large portion of agricultural sector
=> Need for Industrial Policy as well as LM pol-icy