In the early 1990s, many OECD countries were struggling with high and persistent unemployment. In order to assist them, the OECD released its wide-ranging Jobs Strategy. This had a major impact on the policy debate. While it had its critics, the record shows that those countries which implemented its recommendations outperformed those who did not.

Is the employment situation improving in OECD countries? Despite geopolitical tensions, large current account imbalances and soaring oil prices, economic growth is showing resilience in the OECD area and sustained moderate employment growth is projected to continue through 2007. As a result, unemployment rates should continue to ease, gradually reversing the rise in unemployment that accompanied the world economic slowdown earlier this decade.

How has labour market performance evolved since the OECD Jobs Strategy was first promulgated and what are the implications of this evolution for setting policy priorities? Since 1994, employment rates have increased in the majority of OECD countries, reflecting both a cut in unemployment rates and higher participation rates.

Has the 1994 Jobs Strategy reform agenda proven to be effective in practice? The recent experience of OECD countries has been reassuring overall with labour market performance improving most strongly in the countries implementing the most vigorous reforms.

Are general reforms to support the overall functioning of the labour market sufficient to deliver good employment performance or are targeted measures toimprove employment outcomes for particular groups also required? As policy priorities have shifted from lowering unemployment to raising employment ratesmore generally, it has become evident that there is a role for tailored policies which tackle the barriers to participation affecting groups in the working-age population who tend to be under-represented in employment or too often hold jobs that do not make full use of their productive potential. These groups include women, older workers, youth and immigrants. Which types of measures have proven to be most effective for each group? Should the scope of the Jobs Strategy also be expanded to encompass measures to address the problems faced by workers in lagging regions or informal employment?

Have efforts to tackle high unemployment along the lines recommended by the 1994 Jobs Strategy, compromised other social goals, even as they helped to raise employment rates? Consistent with such concerns, wage dispersion has tended to increase in countries where unemployment has come down. However, employment gains have an offsetting effect on the distribution of household incomes, since many of the added workers are from lower income households. Consequently, overall income inequality and relative poverty have increased in some of the countries where unemployment has fallen, but decreased in others. Similarly, reductions in unemployment have coincided with increased low-paid and temporary employment in some countries, but the reverse is true in others. What is clear is that a significant share of low-paid and temporary workers find it difficult to climb the job ladder and/or experience frequent spells out of work, even as others successfully move into stable and better paying jobs.

Can different combinations of policies and institutions deliver similarly high employment rates? Since there are important interactions between macro economic, labour and product market policies, countries can take advantage of synergies and compensating mechanisms in assembling policy packages and building political support for reform. Nonetheless, only a few packages have been identified which can achieve high employment while also assuring fiscal sustainability and resilience in the face of adverse economic shocks. These successful policy packages combine stability-oriented macro economic policy and competitive products markets with agood overall incentive structure in the labour market. Two broad reform strategies for structuring labour market incentives can be identified in the OECD countries which have achieved high employment rates. These strategies differ in their implications for the level of public spending (and taxes) and the degree of risk and inequality characterising labour market – factors that play a key role vis-à-vis the political acceptability of structural reforms.

Did countries that undertook structural reforms fare better than the others in terms of employment and unemployment? How much of the evolution of employment and unemployment in the recent years can be explained by institutional and policy changes? Changes in policies and institutions appear to explain almost two-thirds of non-cyclical unemployment changes over the past two decades. Reforms in the tax-benefit systems and liberalisation of product market regulations unambiguously improve labour market performance. Reforms in these areas appear to be mutually reinforcing, so that the benefit from any particular policy reform tends to be greater the more employment-friendly the overall policy and institutional framework. Likewise, spending on active labour market programmes can reduce work disincentive effects brought about by generous unemployment benefits. Macro economic conditions also matter for unemployment performance, but their impact is shaped by labour market policies and institutions.