Browse by: "2015"

In this report we investigate the effects of vocational education and training (VET) on adult skills and labour market outcomes by using the PIAAC survey. Data comparability across countries, the breath of countries involved, and the almost unique presence of information on assessed skills, training, earnings and employment makes this survey especially valuable to study the different facets of VET as compared to more academic education.

The global financial crisis highlighted the importance of strengthening the resilience of our economies to adverse shocks. In this paper, we take stock of studies carried out primarily within, but also outside the OECD, to better understand the role of macroeconomic and structural policies in spurring or mitigating the vulnerabilities that can lead to costly shocks, as well as the role of policies in mitigating the shock impact and speeding the recovery. Then we offer tentative insights on how policies can be geared to address vulnerabilities early on, mitigate the impact of shocks and speed recoveries, as well as highlight possible trade-offs that exist across policy areas.

The global financial crisis and the high associated costs have revived the academic and policy interest in “early warning indicators” of crises. This paper provides empirical evidence on the usefulness of a new set of vulnerability indicators, proposed in a companion paper (Röhn et al., 2015), in predicting severe recessions and crises in OECD countries. To evaluate the usefulness of the indicators the signalling approach is employed, which takes into account policy makers’ preferences between missing crises and false alarms. Our empirical evidence shows that the majority of indicators would have helped to predict severe recessions in the 34 OECD economies and Latvia between 1970 and 2014. Indicators of global risks consistently outperform domestic indicators in terms of their usefulness, highlighting the importance of taking international developments into account when assessing a country’s vulnerabilities. In the domestic areas, indicators that measure asset market imbalances (real house and equity prices, house price-to-income and house price-to-rent ratios), also perform consistently well both in and out-of sample. Domestic credit related variables appear particularly useful in signalling upcoming banking crises and in predicting the global financial crisis out-of-sample. The results are broadly robust to different definitions of costly events, different forecasting horizons and different time and country samples.

The high costs of crises underscore the need to strengthen the resilience of economies, notably by assessing early on potential vulnerabilities that can lead to such costly events. This paper first discusses the source and nature of potential vulnerabilities in OECD countries that can lead to costly economic crises. Based on the most recent evidence from the early warning literature and lessons learned from the global financial crisis, it then proposes a new dataset of more than 70 vulnerability indicators that could be monitored to assess country risks in OECD economies. The indicators are grouped into five domestic areas: i) financial sector imbalances, ii) non-financial sector imbalances, iii) asset market imbalances, iv) public sector imbalances and v) external sector imbalances. An additional international “spillovers, contagion and global risks” category aims at capturing vulnerabilities that could transmit from one country to another through financial, trade or confidence channels. Evidence in a companion paper (Hermansen and Röhn, 2015) shows that the majority of the proposed indicators for which sufficiently long time series exists is helpful in predicting severe recessions and crises in the 34 OECD economies and Latvia between 1970 and 2014.

Developing activities in areas other than finance would help to sustain growth and deal with the declining potential output and trend productivity growth that Luxembourg’s economy is facing. Given the relatively high labour costs, Luxembourg’s future comparative advantages are likely to lie in higher value added and skill intensive activities. Further development of Luxembourg’s high living standards thus requires strengthening the economy’s growth potential via further diversification of activity in high value added sectors. Stepping up investment in knowledge based capital and enterprise innovation can help Luxembourg to maintain and further develop comparative advantages in high value added activities. The government is promoting the formation of enterprise clusters by providing networking, infrastructure investment and financial support for research and development. To enhance the efficiency of the government’s policy, high priority should be given to outcome-oriented evaluation. This is required to ensure that costly infrastructure investment yields good results. Further efforts should be made to create synergies via cross-border initiatives, in particular with respect to research. Experience in other countries points to the importance of regulatory framework conditions in product and labour markets to spur enterprise dynamics. Regulation in professional services can be made more competition friendly, and impediments to labour force participation, notably for women, can be reduced. Productivity and innovation are also affected by the effectiveness of the secondary education system to produce skilled workers, which in Luxembourg is hampered by high repetition rates among students. This Working Paper relates to the 2015 OECD Economic Survey of Luxembourg (www.oecd.org/eco/surveys/economic-survey-luxembourg.htm).

Fiscal constitutions comprise the set of rules and frameworks guiding fiscal policy that are enshrined in a country’s fundamental laws. This paper compares the fiscal constitutions of 15 federal countries by empirically assessing five building blocks: 1) the power of sub-national governments to conduct their own fiscal policy; 2) the degree to which sub-national governments are held responsible for fiscal policy outcomes; 3) the extent to which sub-national governments can shape fiscal policy of the federal level; 4) the strength of intergovernmental budget rules; and 5) the stability of fiscal policy arrangements. The results can be summarised as follows: Countries can be ranked along a single indicator, namely the degree of constitutionally guaranteed decentralisation. They can also be ranked along an indicator of institutional coherence which measures the extent to which building blocks “fit together”. From 1917 to 2013, fiscal autonomy and responsibility declined – except in the 80s and 90s of the 20th century – while co-determination and budget frameworks were strengthened, and institutional coherence rose. Simple correlations suggest that the extent of decentralisation hardly affects fiscal outcomes such as deficits, debt or vulnerability to crises, while institutional coherence (or incoherence for that purpose) does.

The rapid growth after independence stopped in 2008 as the global crisis exposed important structural weaknesses. Large state involvement and rigid labour and product markets lowered productivity. Weak corporate governance and easy credit before the crisis led to high indebtedness and overinvestment. Slovenia was slow to deal with the underlying structural problems. Gradually, important reforms have been implemented which raised credibility of Slovenia in the financial markets and boosted confidence. But economic recovery has been sluggish, many people are unemployed and living standards still remain below the pre-crisis levels. Cost competitiveness and export market performance deteriorated, and there have been marked improvements only recently. Better corporate governance and management practices in the state owned sector and privatisations can attract FDI and raise efficiency. Low innovative activity could be boosted by more FDI, stronger framework for entrepreneurial activity and better start-up support. Relatively high minimum wage is potentially reducing employment opportunities of low-skilled workers. Limiting the minimum wage growth, and lowering the high tax wedge on labour income could boost employment. Efficiency should be raised in early and tertiary education to enhance skills. Despite generous public support, overall students’ performance could be improved and there are marked differences between students from different socioeconomic backgrounds. This Working Paper relates to the 2015 OECD Economic Survey of Slovenia (www.oecd.org/eco/surveys/economic-survey-slovenia.htm).

Slovenia’s population is set to age rapidly in the coming decades. This demographic trend will increasingly put pressure on already fragile public finances as age related expenditure is projected to rise by 3 percentage points of GDP by the year 2030. Ensuring debt sustainability and generational equity requires reforms of social support systems and necessitates adjustments in labour markets. Policy makers will thus need to act more strongly than in the past to rein in ageing related outlays, pursue efficiency-enhancing restructurings of health and long-term care systems, and adopt measures to strengthen labour force participation. In particular, further increases in the relatively low pension age in line with the rise in life expectancy would reduce pension costs and the burden on the active population. Better utilisation of medical resources and coordinated purchasing of medical supplies would curb health care expenditure, while a dedicated funding mechanism for long-term care would enhance the sustainability of the system. Moreover, removing incentives for early retirement in combination with active labour market policies would increase the labour force participation rates of older workers from its currently very low levels. This Working Paper relates to the 2015 OECD Economic Survey of Slovenia (www.oecd.org/eco/surveys/economic-survey-slovenia.htm).

Excessive credit growth, poor risk assessment and lax lending standards in the run up to the 2008 global crisis led to unsustainable debt build-up in banks and related corporates. A weak framework for the governance of largely state-owned banks is likely to have contributed to the misallocation of credit. Furthermore, there were weaknesses in the banks' risk management systems and banks often didn’t properly adhere to regulations and guidance given by the supervisor. Following the results of the stress tests and the Asset Quality Review, in December 2013, the major state-owned banks were recapitalised at a cost of around 11% of GDP, and part of their non-performing loans (NPLs) transferred to the Bank Asset Management Company (BAMC). Banks nevertheless remain weak, with still high NPLs, and corporations are highly leveraged. For successful restructuring and liquidation of assets, BAMC needs to act independently, transparently, with corporate governance of highest standards. Privatisation can improve corporate governance and closer supervision can ensure better compliance by banks. Insolvency legislation was thoroughly reformed in 2013 and should be implemented effectively to help return the healthy parts of the economy to invest and grow again. This Working Paper relates to the 2015 OECD Economic Survey of Slovenia (www.oecd.org/eco/surveys/economic-survey-slovenia.htm).

Identifying effective policy interventions for adults with low literacy and numeracy skills has become increasingly important. The PIAAC Survey of Adult Skills has revealed that a considerable number of adults in OECD countries possess only limited literacy and numeracy skills, and governments now recognise the need to up-skill low-skilled adults in order to maintain national prosperity, especially in the context of structural changes and projected population ageing. Against this background, this literature review examines the current evidence on policy interventions for adults with low literacy and numeracy skills to clarify which targeted policy levers could best enhance socio-economic returns. Despite progress in measuring adult skills and extensive literature describing practices used in adult literacy and numeracy programmes, there is little analysis of the effects of different interventions on learners. This literature review therefore attempts to bring together the analytical insights from research and practice to provide a broad picture of what has so far proven to motivate low-skilled adults to join and persist in literacy and numeracy learning. The paper shows that low basic skills levels of adults are a complex policy problem that has neither straightforward causes nor straightforward solutions and successful interventions are relatively uncommon. Tackling serious literacy and numeracy weaknesses is challenging because the group of low-skilled adults is diverse and requires different, well-targeted interventions. But there is now an emerging body of evidence on the approaches to teaching and learning that can make life-changing differences to adults in need. The paper identifies formative assessment, e-learning, and contextualisation and embedding (especially in the workplace and family context) as effective approaches to basic skills teaching. The central challenge is to put the evidence to work.

Le pourcentage d’élèves issus de l’immigration a augmenté entre 2003 et 2012, dans les pays d’accueil traditionnels comme dans les nouveaux. L’écart de performance en mathématiques entre les élèves issus de l’immigration et les élèves autochtones a diminué, en moyenne, entre 2003 et 2012. Les différences de niveau socio-économique expliquent moins de la moitié de l’écart de performance en mathématiques entre les élèves issus de l’immigration et les élèves autochtones.

The NZ economy has performed well over the past few years, having achieved relatively strong GDP and employment growth. However, some constraints to sustaining this momentum beyond the short term are emerging in the fields of skills, housing and urban infrastructure. Skills shortages have risen most in construction trades and management occupations. Housing shortages are most severe in Auckland, reflecting supply constraints in the face of population increases. As a result, prices are rising, reducing affordability. Urban infrastructure, particularly for road transportation, is also strained. In this respect, policy has a role to play in expanding economic capacity by reducing supply-side constraints and fostering productivity growth. At times New Zealand’s fiscal policy has been expansionary during upturns. Ensuring that permanent spending or tax cuts are implemented in a sustainable manner would encourage the strong fiscal position that New Zealand needs to meet potentially large macroeconomic shocks and long-run ageing-related costs. This Working Paper relates to the 2015 OECD Economic Review of New Zealand (www.oecd.org/newzealand/economic-survey-new-zealand.htm)

The banking sector in the United Kingdom (UK) was deeply affected by the crisis. Bank credit has collapsed reflecting both weak demand and tighter supply. New prudential requirements have improved the resilience of the banking sector and a number of measures were taken to support credit supply. These included conventional and unconventional monetary policies, policies to address credit constraints with Help to Buy and Funding for Lending programmes, and a number of public programmes to improve access to finance united under the roof of the British Business Bank. Further structural reforms are needed to improve competition in the SME credit market and to boost credit provision to SMEs in the medium term. Sustainable financing of the economy and greater financial stability should be achieved by sound regulation, ensuring high capital requirements for systemically important banks, improving banks’ resolvability and fine-tuning the use of countercyclical measures. Data should be collected on a wider set of financial institutions than currently done and macroprudential regulation should be gradually extended beyond the banking sector to prevent the migration of systemic risks. This Working Paper relates to the 2015 OECD Economic Survey of the United Kingdom (www.oecd.org/eco/surveys/economic-survey-united-kingdom.htm)

The United Kingdom (UK) has spent less on infrastructure compared to other OECD countries over the past three decades. The perceived quality of UK infrastructure assets is close to the OECD average but lower than in other G7 countries. Capacity constraints have emerged in some sectors, such as electricity generation, air transport and roads. Developing and regularly updating a national infrastructure strategy, with the National Infrastructure Plan being a welcome first step in this direction, would contribute to reduce policy uncertainty and tackle capacity constraints in a durable way. The design of coherent development plans by local authorities congruent with the national and local planning systems should continue to improve project delivery. The government intends to finance a large share of infrastructure spending to 2020 and beyond through private capital. Unlocking private investment in a cost effective and transparent way could be supported by further improving incentives for greenfield investment, continuing to carefully assess and record public-private partnerships, and promoting more long-term financing instruments. This Working Paper relates to the 2015 OECD Economic Survey of the United Kingdom (www.oecd.org/eco/surveys/economic-survey-united-kingdom.htm).

The share of students with an immigrant background increased between 2003 and 2012, both in traditional and new destination countries. The performance difference in mathematics between immigrant and non-immigrant students decreased, on average, between 2003 and 2012. Differences in socio-economic background explain less than half of the performance difference in mathematics between immigrant and non-immigrant students.

Indonesia has a very good record of poverty reduction, having halved its incidence over the past two decades. Nevertheless, almost 30 million people still live below the national poverty line, mostly in rural areas and in certain provinces. In order to make further progress in lifting these people out of poverty and economic vulnerability, policy needs to focus on generating strong, inclusive and sustainable growth. Pro-poor growth can assist in the process of economic convergence by facilitating the migration of workers out of the low-productivity agricultural sector into the industry and services sectors. By putting in place the right fundamentals, such as a well-designed and inclusive education system, efficient infrastructure and a stable macroeconomic environment, Indonesia will have decades of strong growth ahead by virtue of economic convergence with frontier countries. This has the potential to lift millions more out of poverty without exacerbating income inequality. Moreover, it will set Indonesia up for the next phase of innovation-driven growth that will propel it into the ranks of high income countries. While existing poverty reduction programmes have become increasingly effective, more resources are required, and efficiency could be further enhanced, especially through better targeting. The distribution of income has become markedly more unequal over the past decade and needs to be kept in mind when formulating growth policies. This Working Paper relates to the 2015 OECD Economic Survey of Indonesia (www.oecd.org/eco/surveys/economic-survey-indonesia.htm)

As part of a wider project on mental health in OECD countries, a series of descriptive profiles have been prepared, intended to provide descriptive, easily comprehensible, highly informative accounts of the mental health systems of OECD countries. These profiles, entitled ‘Mental Health Analysis Profiles’ (MHAPs), will be able to inform discussion and reflection and provide an introduction to and a synthesised account of mental health in a given country. Each MHAP follows the same template, and whilst the MHAPs are stand-alone profiles, loose cross-country comparison using the MHAPs is possible and encouraged. The English mental health care system can be regarded as one of the clearest examples of a “community care” approach to mental illness, with relatively well established links and networks between mental health care providers and social care providers. Strong links between social support services, for example employment and housing services, and appropriate psychological and medical interventions, have been a priority. Recent developments in the system include the introduction of a programme of talking therapies, IAPT, rolled-out nation-wide, a commitment to introduce waiting times standards for mental health services, and early in 2014 a mental health action plan, Closing the gap: priorities for essential change, which sets out 25 areas for urgent action.

Mental ill-health is a significant issue in Sweden, with both mild-to-moderate and severe disorders representing a significant burden of ill health. Mild and moderate mental health problems constitute the greatest number of cases, and such disorders have been on the rise over the past several decades. However, mental ill-health is also recognised as a vital national issue by Swedish authorities. Accordingly, Sweden has a relatively comprehensive approach to mental health as part of its universal health plan. Sweden was also at the forefront of such trends as deinstitutionalisation and official suicide prevention programs. Country-specific initiatives designed to tackle the most pressing psychological problems in Sweden are in place, including suicide, societal stigma and rising levels of mental problems amongst Swedish youth and workers.