Can employment be increased only at the cost of more inequality?

Transcription

1 Can employment be increased only at the cost of more inequality? Engines for More and Better Jobs in Europe ZEW Conference, Mannheim April 2013 Torben M Andersen Aarhus University

2 Policy questions How to: Maintain/increase employment rates Ensure equitable income distribution Is education the answer? Many structural problems have their root in weak qualifications

3 Labour market trends Structural: Technology + globalization = skill-bias = task-bias Consequences: Widening wage inequality Declining employment rates

4 Increasing inequality 0,4 0,38 0,36 0,34 0,32 0,3 0,28 0,26 Gini disposable income Inequality and redistribution ISR NZL GBR JPN GRC AUT CAN HUN FRA NLD CZE DEU NOR USA 0,24 DNK LUX FIN 0,22 45 o SWE 0,2 0,2 0,3 0,4 0,5 0,6 GINI market incomes BEL PRT ITA Change Gini disposable Change in income inequality: mid 90s and 2000s FIN CAN 3 SWE USA 2 DNK FRA CZE DEU 1AUT ITA NZL LUX HUN JPN 0 GBR NLD 1 GRC BEL Change Gini market ISR NOR PRT

5 Policy dilemma Increasing inequality Scope for redistribution is constrained Public finances are under pressure Trade-off between efficiency and equity - more steep trade-off due to globalization, structural changes etc.

6 Trade-off efficiency and equity in the labour market ISL Best practice frontier Employment rate USA KOR CAN DEU HUIN IRL GBR AUT ESP SLK ISR AUS JPN CZE GRC NZL PRT DNK NOR ITA CHE FRA FIN SWE BEL 55 POL CHI 50 0,4 0,45 0,5 0,55 0,6 0,65 0,7 0,75 Wage equality, D1/D5

7 Active vs passive redistribution policies Redistribution: taxes and social safety net Passive: Attempts to repair market outcomes (financing requirement, insurance, distortions). Alternative: Active: Forming market outcomes via education/qualifications structural change

8 Education and the labour market 0,55 0,5 Gini market income USA GBR NZL FIN DEU FRA MEX ITA Micro evidence: Strong educational gradient PRT AUS 0,45 GRC BEL SWE JPN AUT 0,4 NOR NLD DNK 0,35 KOR 0,3 0,0 0,1 0,2 0,3 0,4 0,5 Gini education Employment Wage Job security Retirement Health Social participation

9 The redistributional trinity Qualifications Market income Market income Disposable income Inequality Market income Inequality Education Inequality Disposable income

10 Equality under pressure Qualifications Market income Market income Disposable income Inequality Market income Inequality Education Inequality Disposable income

11 1 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0 Employment gaps Low education relative to medium education Ratio Iceland Slovak Republic Poland Hungary Israel Czech Republic Belgium Slovenia Turkey Germany Estonia Austria Italy Ireland Finland Canada France United States Netherlands Luxembourg Switzerland Greece Spain Denmark United Kingdom Norway Australia Mexico Sweden Portugal New Zealand Korea 2007

12 Large group with no education TUR MEX PRT ESP ITA ISL GRC NZL DNK OECD¹ BEL NLD GBR NOR EU FRA LUX AUS HUN EST DEU CHL IRL AUT ISR USA CHE FIN SWE CAN SVN POL SVK CZE KOR 2010 Population share at least upper secondary school education

13 NEET: Not in employment, education or training, age %

14 Demographics Educational explosion in +/- 1960s Young generations significantly better educated than older Strong driver for changed skill-composition of labour force Forward demographic tail wind ceases

15 Empirical literature Skill-bias in labour demand Race between technology + globalization and education Country-studies: Improving the skillcomposition of the workforce has been instrumental in countering the consequences of skill-bias in labour demand

16 Why public education and labour market training? Capital market imperfections Myopia Externalities Imperfections in private markets Social barriers Redistribution

17 Active vs passive redistribution: Theoretical arguments Existing literature Education on the intensive margin Interaction: Abilities and education Regressive bias: Educational activities should be directed towards the more able! Income distribution repaired via passive instruments

18 Robust finding? Human capital: Binding constraints: Intensive margin Capital markets? Extensive margin - increasing the share of skilled Social barriers

19 Empirical evidence Social barriers Strong social gradient in education Entry Performance Social gradient present even if economic barriers are minimized

20 Social path dependence Odds ratio 1 0,9 0,8 In higher education if parents have low levels of education Indeks Impact of social and cultural status on educational performance (PISA) ,7 50 0,6 0,5 40 0,4 30 0,3 20 0,2 0, ISL TUR PRT IRL GBR DNK SWE ESP NLD AUS ITA OECD POL FIN LUX DEU AUT NOR GRC FRA CHE HUN BEL CZE SLV USA CAN NZL ISL KOR FIN ESP ITA GRC MEX IRL POR NOR SWE CAN CHI DNK PÆOL CHE AUT BEL NZL AUS ISR USA HUN GER CZE

21 0,8 Odds ratio 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0 Social impact on educational performance

22 Education as active redistribution Extensive margin + social barriers Public education can affect the share of skilled Taxes finance education and transfers Wage distribution depends on skill composition of labour supply

23 Tail winds from a change in skill composition of labour supply: More skilled - less unskilled: More compressed wage structure Public budget: Less transfers more tax revenue

24 Redistribution Does tax revenue spent on education buy more redistribution than passive redistribution? Passive redistribution: Differences in marginal utilities of consumption Active redistribution: Differences in levels of utility

25 The efficiency-equity trade-off Aggregate income Education more skilled Optimal policy Equality

26 Active vs passive redistribution? Active redistribution part of the optimal package (utilitarian criterion) More active redistribution less passive redistribution Skill-bias: More active redistribution under plausible conditions

27 Policy implications Education an important structural factor Employment Wage structure Large residual group is a structural problem in the labour market which is difficult to solve via passive policies

28 Quantity vs quality Empirical work on productivity Education is important Quality more than quantity Base more than top Too much focus on quantitative measures? How do we ensure quality in education?

29 Educational inflation? Too much focus on tertiary education? Korean lesson: unbalanced educational system with too much focus on tertiary education High unemployment rates for highly educated Shortage of skilled workers

30 Educational financing Social barriers are most important in early schooling/education More specific education/training generate rents which can be appropriated by employers/employees less need for public intervention More value for money!

31 Europe 2020 Five headline targets 1. Employment 75 % of the year-olds to be employed 2. R&D / innovation 3 % of the EU's GDP (public and private combined) to be invested in R&D/innovation 3. Climate change / energy greenhouse gas emissions 20 % (or even 30 %, if the conditions are right) lower than % of energy from renewables 20 % increase in energy efficiency 4. Education Reducing school drop-out rates below 10 % at least 40 % of year-olds completing third level education 5. Poverty / social exclusion at least 20 million fewer people in or at risk of poverty and social exclusion