Labour, goods and service markets

By Baptiste Meunier

Despite full employment, Japan is struggling with wage stagnation. Although this "enigma" can in part be explained by cyclical factors - subdued productivity and inflation expectations - it is also being exacerbated by structural factors linked to the country’s social model, notably the duality of its labour market. As a result, the prospects for a rise in wages and hence inflation remain limited.

Croissance des salaires et chômage au Japon
Chart1 – Wage growth and unemployment in Japan Source: OECD

By Julia Schmidt (with Walter Steingress)

Current trade disputes focus on import tariffs. However non-tariff barriers still constitute a large share of barriers to trade. Cross-country harmonisation of product standards reduces these barriers. The trade-enhancing effects of such harmonisation efforts are equivalent to a reduction in import tariffs of 1.8 percentage points, compared to an average applied tariff rate of 2.0% for the European Union.

Chart 1: Trade Restrictiveness Index
Chart 1: Trade Restrictiveness Index Source: Overall Trade Restrictiveness Index by Kee et al. (2009). The data used were computed for the year 2009.

By Françoise Drumetz and Rémy Lecat

Despite persistent high unemployment, recruitment difficulties have already started to arise in France. The current unemployment rate is approaching its structural level, but wages have been relatively sluggish. These pressures partly reflect temporary effects that are common during periods of intense job creation. In the medium term, more effective vocational training would help to lower the level of unemployment at which these pressures begin to emerge.

Chart 1: Downward unemployment rigidity in France?  Minimum, maximum and average unemployment rates for the 1985-2017 period
Chart 1: Downward unemployment rigidity in France? Minimum, maximum and average unemployment rates for the 1985-2017 period Source: Eurostat.

Short-time work schemes have been implemented in many OECD countries with a view to protecting jobs in companies experiencing temporary difficulties. While such schemes made it possible to save jobs during the Great Recession of 2008-2009, they may also have adverse effects on the economy. However, these effects would be minimised by sensible reforms.

Chart 1. Short-time work and growth Source: OECD.

By Violaine Faubert and Antoine Lalliard

Since 2008, the over-50s are the only age group in the euro area to have seen a steady rise in employment, as a result of population ageing and the increase in the effective pension age. In contrast, the number of those under 50 in work has fallen markedly over the same period, despite a recent stabilisation in the trend. The over-60s are the only group not to have seen an improvement in gross hourly wages between 2010 and 2014.

Chart 1: Number of people in work in the euro area by age group and for the entire population aged 15-74. Difference relative to the first quarter of 2008 (thousands). Source: Eurostat

By Benoit Mojon and Xavier Ragot

The weakness of wage inflation may result in part from the increasing participation of older workers in the labour market. Over the last two decades, the participation rate of workers aged 55 to 64 has increased from 33% to 55% on average across OECD countries. We observe that, since 2013, the countries where this increase in labour supply has been the largest have also experienced slower wage inflation.

Figure 1: Wage inflation and the participation of older workers in the G7

By Pierre Sicsic and Antoine Sigwalt

According to administrative sources based on employer returns, salaried employment in France rose by more than 40 thousand in 2017Q3. Conversely, according to the household Labour Force Survey, the unemployment rate increased from 9.2% to 9.4% in metropolitan France. In principal, this divergence may be related to changes in the labour force. In practice, it is also the result of differences in the methods applied to measure quarterly employment variations.

In France, flexibility in the labour market relies mainly on fixed-term and temporary workers. These workers are less well paid, receive less training and find it difficult to obtain permanent employment. This two-tier labour market creates social and economic problems. Public policies can be envisaged to favour transition to permanent contracts.