Eckhard Wurzel

Ageing Populations, Pension Systems and Government Budgets

The paper examines the effects of demographic changes on government budgets and national savings. Most OECD countries will experience a rapid ageing of the population in the future and this development will put public pensions, health care systems and government budgets in general under increasing pressure. It could also have adverse effects on national saving. In order to provide some idea of the scale and magnitude of potential future problems the paper presents a quantitative analysis of the effects of ageing populations on government budgets, on inter-generational equity and on national saving and it also discusses policy options to cope with these problems. The paper finds that getting general government fiscal positions into better shape over the next few years would enable governments to better cope with the demographic change that will occur in the first decades of the next century. Furthermore, it stresses that further increases in retirement ages could make a major ... Ce document examine l’incidence de l’evolution demographique sur les budgets publics et l’epargne nationale. Dans un future proche, la plupart des pays de l’OCDE vont etre confrontes a un vieillissement rapide de leur population et cette evolution se traduira par des pressions accrues sur les systemes publics de pension et de sante et plus largement sur les budgets publics. Elle pourrait aussi avoir des effets negatifs sur l’epargne nationale. Afin de donner une idee de l’echelle et de l’importance des problemes potentiels a venir, cette etude presente une analyse quantitative des effets du vieillissement des populations sur les budgets publics, sur l’equite entre generations et sur l’epargne nationale. Elle analyse aussi les differentes options de politique economique qui pourraient permettre de faire face a ces problemes. Il en ressort qu’ameliorer les positions budgetaires au cours des prochaines annees permettraient aux gouvernements de mieux faire face aux changements ...

The Economic Integration of Germany's New Länder

The economic integration of the eastern German states has progressed rapidly in many respects. The infrastructure has been rapidly built up and modernised. A strong trend to modernise the business capital stock has been established, aided by financial assistance from the west. Already at the beginning of the 1990s the elaborate western German social security system had been extended to the new states. Incomes of both the employed and the non-employed, in particular retirees, have risen fast, and have approached west German levels. There has also been a high degree of structural change, as witnessed by high growth rates in manufacturing, increasing export shares, the rapid expansion of the service sector and the down-sizing of the construction sector after very high -- and largely policy-induced -- growth rates in the first half of the 1990s. However, in the second half of the 1990s economic growth in the east decelerated, and income convergence has stalled and employment stagnated ... L’integration economique des Lander d’Allemagne orientale a progresse rapidement dans des domaines essentiels. Les infrastructures ont ete developpees et modernisees rapidement. Grâce a l’aide financiere de l’Ouest, un puissant processus de modernisation du parc d’equipements industriels et commerciaux s’est instaure. Des le debut des annees 90, le systeme elabore de securite sociale de l’Allemagne occidentale a ete etendu aux nouveaux Lander. Les revenus des actifs et des inactifs, en particulier les retraites, ont rapidement augmente et se sont largement rapproches des niveaux observes en Allemagne occidentale. On constate en outre jusqu’a present un profond changement structurel, dont temoignent la forte croissance dans le secteur manufacturier, l’augmentation des parts de marche a l’exportation, la vive expansion des services et la contraction tres marquee dans la construction, qui avait connu durant la premiere moitie des annees 90 des taux de croissance tres rapides, induits ...

An econometric analysis of individual unemployment duration in West Germany

I. Introduction.- II. Models of Individual Unemployment Duration.- II.1 Models of Labor-Leisure Choice.- II.2 Job Search Theory.- III. Hazard Rate Models.- III.1 Single Risk Models.- III.2 Competing Risks Models.- III.3 Parameterization of the Regression Model.- III.4 Unobserved Heterogeneity.- III.5 Survey of Empirical Findings from Hazard Rate Models.- IV. Alternative Approaches for the Analysis of Duration Data.- IV. 1 Time-Series Regression Analysis with Aggregate Data.- IV.2 Structural Job Search Models.- IV.3 Calculation of Individual Reservation Wage Elasticities.- V. Sample Designs and Semi-Parametric Specification.- V.1 Sample Designs for Unemployment Duration.- V.2 Semi-Parametric Specification of Hazard Rate Models.- VI. The Variables.- VI.1 Unemployment Duration.- VI.2 Economic and Demographic Characteristics.- VI.3 Unemployment Benefits and Expected Earnings.- VI.3.1 The German Unemployment Benefits System.- VI.3.2 Conceptual Issues Regarding Benefits and Earnings.- VI.3.3 Sample Information on Unemployment Benefits.- VI.3.4 Estimation of Wage Offer Distributions.- VII. Results of the Hazard Rate Analysis.- VIII. Summary of Main Results and Outlook on Aggregate Unemployment.- Appendix: Sample Means and Standard Errors.- References.

Recent Oil Price Movements

Crude oil prices have trended up since the end of the 1990s, peaking at a historic high in mid-2008 that was followed by a steep price correction with a subsequent rebound. This paper considers major forces behind the evolution of the oil price, using a simple model of supply and demand elasticities as a benchmark, highlights implications for inflation and economic activity and draws some conclusions for macroeconomic policy. The analysis suggests that the run-up in crude oil prices since 2003 was due to both vigorous oil demand growth by emerging markets and, from the middle of the decade onward, a weaker than expected oil supply response to rising prices. Prices are unlikely to fall back to levels seen in the first years of the decade either over the short or medium term. Evolution recente du prix du petrole : Facteurs explicatifs et questions de politiques economiques Les prix du petrole brut ont cru regulierement depuis la fin des annees 90, jusqu’a atteindre un plus haut historique a la mi-2008 et ont ensuite ete suivi par une baisse significative puis un nouveau rebond. Ce document met en exergue les forces principales derriere cette evolution des prix du petrole en utilisant comme reference un modele simple d’elasticites de l’offre et de la demande. Ensuite sont mis en evidence les implications pour l’inflation et l’activite economique. Enfin des conclusions sont tirees pour la politique macroeconomique. L’analyse suggere que l’augmentation des prix du petrole depuis 2003 provient a la fois d’une croissance dynamique de la demande de petrole en provenance des marches emergents, et depuis la seconde moitie de la decennie d’une reaction plus faible que prevue de l’offre de petrole face a des prix en hausse. Il est peu probable que les prix retombent a des niveaux prevalant les premieres annees de cette decennie que ce soit dans le court ou le moyen terme.

What Affects Fiscal Consolidation? – Some Evidence from OECD Countries

Stephanie Guichard, Michael Kennedy, Eckhard Wurzel and Christophe Andre examine the circumstances most commonly related to successful fiscal consolidation. Data are drawn from a dataset covering twenty-four OECD countries since 1978. Based on improvement in the cyclically-adjusted primary balances (CAPB), they detect eighty-five consolidation episodes. First the paper presents descriptive evidence that initial conditions play a major role. In particular, the more negative the CAPB, the larger the ensuing consolidation. In the vast majority of cases, consolidations did not last long and involved only modest gains, and revenue increases accounted for a large fraction of the average improvement. In the second part of the paper, the authors deploy regression analysis to identify a number of macroeconomic conditions that were effective in triggering and sustaining consolidations. The initial budget balance is statistically significant in explaining the starting point, the size and the duration of the adjustment process, while the magnitude and the probability of success of the consolidation programme are affected by cuts in some expenditure items.

Improving the Capacity to Innovate in Germany

Key indicators show Germany belonging to the countries in the OECD with strong innovation activity even though some weakening in Germany’s position relative to other OECD countries has occurred recently. While the redirection of resources towards unification-related spending as well as low economic growth have contributed to this development, more fundamental structural issues have also played a role. Germany has benefited less than other high-performing countries from the surge in new technologies, such as ICT and biotechnology, as innovation activities continue to focus on sectors, such as machinery and automobiles, in which Germany has a long record of strong export performance. Some features of the regulation of capital, product and labour markets are hampering the supply of risk capital, the creation of new firms and the reallocation of labour. In addition, firms are finding it increasingly difficult to recruit highly qualified labour. Measures to improve the framework ... Selon les principaux indicateurs, l’Allemagne est l’un des pays de l’OCDE ou l’activite d’innovation est soutenue, meme si sa position relative s’est quelque peu degradee ces derniers temps. Si ce phenomene peut s’expliquer en partie par un detournement des credits vers les depenses liees a l’unification et par la lenteur de la croissance economique, des facteurs structurels plus fondamentaux sont egalement intervenus. L’Allemagne a beneficie moins que autres pays de l’explosion des nouvelles technologies, telles que les TIC et la biotechnologie, l’activite d’innovation restant axee sur les secteurs dans lesquels l’Allemagne obtient depuis longtemps de tres bons resultats a l’exportation. Certaines caracteristiques de la reglementation des marches des capitaux, des produits et du travail freinent l’offre de capital-risque, la creation de nouvelles entreprises et la redistribution de la main-d’œuvre. De plus, les entreprises ont de plus en plus de mal a recruter des travailleurs ...

Towards More Efficient Government

In Germany fiscal relations between the various levels of government have come to the fore of the policy debate. In practice the federal fiscal set-up has evolved towards consensus and co-operation, where equalisation of living standards takes precedence over public choice and economic incentives. Shared taxes and the low reliance on own taxes make for a relatively inefficient control over public spending. At the same time, the system may be criticised for not achieving economic convergence among the states. The difference in regional living standards is smaller than in some other economies, but the revenue equalisation system offers no incentives to expand the tax base and may even promote tax avoidance. Greater dynamism could be achieved with a less confiscatory equalisation system and a higher degree of tax autonomy and both of these should form part of any balanced tax and expenditure reform ...

Hazard Rate Models

The analysis of unemployment duration in this study is based on the concept of the hazard rate and of the survivor function which were introduced in chapter II.2 about search theory. In the present chapter the design of explanatory hazard rate models for individual unemployment duration is considered in detail and empirical findings are surveyed. The framework established in this chapter is then used in subsequent chapters to construct models for our empirical investigation. Firstly, in part III. 1 we focus on a “single risk” setting that only distinguishes two states “unemployment” and “not unemployment”. In chapter III.2 the framework is extended to “competing risks” models which explicitly distinguish between different post—unemployment states into which transition from unemployment can occur. In part III.3 the parameterization of the regression model is discussed. It is unlikely that all factors which influence unemployment duration can be incorporated into an empirical model. Part III.4 of the chapter therefore considers the influence of left-out variables on statistical inference. Finally, in part III.5 results from other investigations based on the hazard rate approach are reviewed.

Luxembourg – diversifying a small open economy

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). Luxembourg – diversifier une petite economie ouverte Developper l’activite dans des domaines autres que la finance permettrait de soutenir la croissance et de faire face a la baisse de la production potentielle et de la croissance tendancielle de la productivite que connait l’economie luxembourgeoise. Etant donne les couts de main-d’oeuvre relativement eleves, les avantages comparatifs futurs du Luxembourg vont vraisemblablement reposer sur des activites a plus haute valeur ajoutee et a plus forte intensite de main-d’oeuvre qualifiee. Par consequent, la progression du niveau de vie du Luxembourg, deja eleve, exige le renforcement du potentiel de croissance de l’economie a travers une diversification plus poussee dans des secteurs d’activite a forte valeur ajoutee. Investir plus massivement dans le capital intellectuel et dans la capacite d’innovation des entreprises peut aider le Luxembourg a maintenir et a renforcer des avantages comparatifs dans des activites a forte valeur ajoutee. Le gouvernement s’emploie a promouvoir la mise en place de poles d’entreprises en favorisant la constitution de reseaux, en investissant dans les infrastructures et en aidant financierement la recherche-developpement. Pour ameliorer l’efficacite de la politique publique, il faudrait accorder une priorite elevee a la realisation d’evaluations axees sur les resultats, afin de s’assurer que les investissements dans les infrastructures, qui sont couteux, produisent des resultats satisfaisants. Il faut aussi s’employer davantage a generer des synergies par le biais d’initiatives transfrontalieres, en particulier en matiere de recherche. L’experience d’autres pays fait ressortir l’importance que peut jouer le cadre reglementaire des marches des produits et de l’emploi pour insuffler un nouveau dynamisme aux entreprises. Il est possible de rendre la reglementation des services professionnels plus favorable a la concurrence et de reduire les facteurs pesant sur le taux d’activite, notamment des femmes. L’efficacite du systeme d’enseignement secondaire au Luxembourg, qui se caracterise par un taux de redoublement eleve et a du mal a produire des travailleurs qualifies, affecte egalement la production et l’innovation. Ce Document de travail se rapporte a l’Etude economique de l’OCDE de Luxembourg, 2015 (www.oecd.org/fr/eco/etudes/etude-economique-luxembourg.htm).

Summary of Main Results and Outlook on Aggregate Unemployment

This study is concerned with individual unemployment duration. Chapter II. reviewed the determination of individual unemployment duration in neoclassical labor supply theory and search theory. Chapter III. introduced hazard rate duration models and reviewed empirical findings from these models. In chapter IV. alternative empirical approaches for modeling unemployment duration and reservation wages were considered. Except for the time—series models with aggregate data considered briefly in chapter IV.1, this material also referred to individual duration models exploiting data sets on individual characteristics. In chapter V. the sample design for individual unemployment durations in the Socio—Economic Panel was considered and semi—parametric hazard rate models were constructed. These models were utilized to analyze the impact of socio-economic characteristics of interest on the probability of entering a new job and of leaving unemployment, respectively. The relevant variables for our models were discussed in chapter VI., and the results were presented in chapter VII. In the last chapter of this study I briefly summarize the main findings of the hazard rate analysis and show how the hazard rate framework can be utilized to connect individual unemployment durations with the steady state stock of aggregate unemployment. This analysis is simply “arithmetic” in that it translates given unemployment flows into unemployment stocks without considering the quality of an equilibrium.