OECD backs down as finding is attacked

By Robert Taylor, Financial Times, 9 July 1999

London—Attacks from western governments have prompted the Organisation for Economic Co-operation and Development to climb down from a controversial finding in its recent employment report that job protection laws have little or no effect on overall unemployment.

The finding, contained in the organisation's annual employment outlook, is being used by trade unions in countries such as Spain and Italy—the OECD says—to resist government efforts to deregulate their country's labour markets.

The Paris-based organisation now says the way in which the controversial chapter in the study was presented was due to a communications blunder. The OECD said yesterday the chapter's conclusion was not terribly informative and was only a first step in an ongoing study that requires further evidence.

It was an apparent spin that was not justified by what the report actually said, the OECD added, although it conceded the report was written in such a way as to support the view that job protection measures do not have a negative effect.

The OECD has been warned its research findings threaten to undermine the organisation's liberalisation strategy to tackle unemployment. This was launched five years ago and urged industrialised countries to promote deregulation by, among other measures, abolishing restrictions on hiring and recruitment to reduce unemployment and increase job opportunities.

In fact, the specific chapter under attack—based on existing evidence—pointed out that regulations did adversely hit younger and older workers but not prime-age men. It also favoured further research to see whether any trade-off existed between job protection and employment creation.

However, the study has provoked uproar between the OECD's economists and labour market experts who work in separate departments. There is a firewall between them, admitted one insider. The economists have gone ballistic over the employment report written by the social affairs staff because it seems to contradict their attitudes. Publicly they now say they all agree with each other but that is not the case.

John Evans, head of the organisation's trade union advisory committee, said: The OECD must make a choice. They can either look at the evidence they have and adjust their policy conclusions accordingly or they can push on with their liberal policies regardless and ignore the evidence.