It is not just up to Washington to correct global imbalances
16 Jan '06
10 min read
Reform pensions in a sensible way: raise statutory retirement ages by linking them to life expectancy and introducing actuarial fairness. This would promote intergenerational equity and help the sustainability of pension plans.
Supporting the jobless, but strengthen incentives: be generous with unemployment benefits but limit their duration. Long-term unemployment benefits can also be linked to active job searching and the performance of socially useful work.
Make it easier for people to work, but limit distortions: governments, for example, could help people maintain adequate living standards through income tax credits rather than employer subsidies to create jobs at high minimum wages.
Continue to overhaul employment protection legislation: more flexible labor contracts, for example, would promote job creation and prevent the existence of dual labor markets. This would be a more equitable approach to job protection than that embedded in the current employment protection legislation in many countries. In a globalized world, a focus on income generation rather than job creation per se will produces the greatest gain.
Promote more active social spending: better education and job retraining would improve employment and income prospects and lessen the need for income support through welfare mechanisms.
Another promising avenue toward higher growth and efficiency is through further integration of Europe's financial markets. Greater financial integration should enhance competition, improve efficiency, lower the cost of capital, and improve monetary transmission. Some progress has been made, and much has been done at the EU level to advance the integration of national financial markets. But effective implementation is still needed, and work has barely begun on differences in taxation and legal systems that have impeded financial integration. Also, financial innovation is still very much proceeding at the national rather than European level. Further progress will require overcoming vested interests at the national level, and establishing a level playing field for financial institutions to compete and innovate, to the benefit of consumers and investors.
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