Understanding Policy Interactions and Complementarities, and their Implication for Reform Strategies

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.