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N° 1999 - 13 |
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| September |
Reduction of Working Time
Eastward Enlargement of the European Union |
French-German Economic Forum
5th meeting |
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The discussion was based on
two presentations: "Reduction of Working Time: Does it Decrease Unemployment?"
by Axel Börsch-Supan (University of Mannheim, CEPR and NBER). "The Eastward
Enlargement of the European Union: a New Economy for a United Europe" by
Antoine-Tristan Mocilnikar (French Planning Agency, Paris).
1. REDUCTION OF WORKING TIME (RWT)
Axel Börsch-Supan presented some figures showing that Germany has reduced working time by 8% since 1980 and by over 20% since 1960. However this did not impede a huge rise in employment and a fall in the employment rate of elder workers. According to Mr Börsch-Supan, only Léon Blum in France succeeded in reducing unemployment after reducing working time in 1936, but this was due to the simultaneous fiscal stimulus.
Then, Mr Börsch-Supan listed a number of necessary conditions for making RWT a success: fixed prices and wages, perfect substitutability between employed and unemployed workers, constant output, preference for leisure, no capital substitution, no fixed costs per worker. He insisted that the impact of RW on employment would crucially depend on the impact on the real wage bill. He then turned to the German experience, which he examined through four types of studies: circumstantial evidence, direct evidence, simulation studies and case studies.
2. EU ENLARGEMENT
Antoine-Tristan Mocilnikar started his presentation through reminding the participants the decisions of the Cologne summit of June 3rd and 4th 1999, which fixed end-2000 as a deadline for the new Inter-Governmental Conference. He also insisted in the political aspect of enlargement, which was enhanced by the Kosovo war. After recalling some basic arithmetic of enlargement, Mr Mocilnikar showed that there was no clear relationship in the CEECs between the amount of reforms and the initial fall in GDP, but that afterwards, countries that had reformed most recovered more quickly. He provided a set of graphs showing that economic liberalisation is negatively related to average inflation, and positively linked to political freedom and to average GDP growth. He then quoted a study by Baldwin and others (1997), showing that market integration would have much more impact on CEECs GDP than a simple free-trade association agreement, because only in the former case would country risk be reduced, which would bring capital flows in. In this spirit, developing credible prospects for membership would favour direct investments from now through positive expectation effects. Mr Mocilnikar subsequently used various econometric studies in order to measure the potential impact of institutional change on growth both directly (as a production factor) and indirectly (through capital accumulation derived from foreign direct investment). Using calculations carried out by the French Planning Agency, he evaluates potential growth per capita to be close to 5-6% per annum.
Concerning potential benefits from enlargement, several economists from both sides of the Rhine asked for caution concerning trade and growth evaluations included in the paper, due to methodological disagreement or more general scepticism on this kind of exercise where institutional change cannot be treated as exogenous. One participant remarked that East Germany should have attracted huge amounts of direct investments according to this analysis. Another compared the outcome of Spain and Portugal in the one hand, Greece in the other hand. Finally, the participants stressed the role of the monetary framework on the success of enlargement, and the necessity to design a complete two-tier (single market, monetary union), or maybe three-tier (start with association) integration.
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Abstract |
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| Working time, Enlargment, Integration, European
Union |
Keywords |
| J2, F1, F4 |
JEL classification |
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