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Compliance with G8 Commitments:
From Denver 1997 to Birmingham 1998

~ Compliance Content ~

Compliance Studies by Issue Area:


"Measures that expand the availability of high quality education and training and increase the responsiveness of labor markets to economic conditions will aid the ability of our people to adjust to all types of structural changes".

France: Score: 0

While the economic recovery is underway in France, with the domestic demand replacing the foreign demand that was fuelled by a low franc, most analysts believe that the employment situation will improve very slowly due to the structural nature of the problems. Two of these problems are the high level of social security contributions and the high cost of labor, particularly regarding unskilled workers. Recognition of these specific problems has begun with the shift of the burden of financing the social security deficit away from earned wages and towards all income. The new socialist government has proposed a series of measures aimed at curbing the unemployment level. One of these proposals includes the hiring of 350,000 young workers in the public sector (as of March 31, 1998, 50,000 youth had been employed under this initiative). Another measure includes the controversial plan to reduce the workweek to 35 hours. The legislation has been passed and is set to begin implementation by 2000. The previous right-wing government has implicitly acknowledged the virtue of these measures by implementing the "Robien Law" which grants generous tax breaks for companies that reduce the workweek. The Government finds itself torn between the need to abide by its commitments to its European partners, the requirements for the entry in the first round of the Euro, and the pressure imposed by the newly formed, yet well-organized associations of unemployed people.

United States: Score: +1

According to a policy paper from the Kobe Jobs Conference in November 1997, the U.S. has adopted a three-part economic strategy to promote smooth adjustments to structural change. The first is deficit reduction. The second is on going investment in education and training. And the third has been a strategy for free and fair trade where they have "worked vigorously to tear down barriers to American goods abroad." The U.S. has conducted a series of initiatives and has provided a number of grants to aid employees in gaining access to higher education or training and increasing the labor market's ability to adjust to structural change. Highlights of these activities are as follows: 1) the US Government committed itself to a zero budget deficit in 1999 which would take the government out of the competition for scarce investment funds and allow the private sector to create more job opportunities; 2) the Government made available $4B to states in grants which will serve as the foundation for job training programs and public employment offices; 3) the Government funded the largest increase in educational investments in a generation which included new funding to ensure all children learn to read well by bringing technology to the classroom, expanding the "Head Start" program for children, providing tax incentives to help all Americans attend college and increasing the grant award for low income students; 4) the Government entered a partnership with twelve states in their "Welfare to Work" initiative which includes special grants for people with disabilities and Native Americans; 5) the Government initiated a series of grants to help states set up automated phone lines to apply for Unemployment Insurance; 6) the Government provided grants to encourage industry to expand their involvement in upgrading the skills of the workforce; and 7) the Government established programs to aid older workers and veterans needing employment assistance.

Some critics have argued that the recent presidential push to increase the minimum wage will limit the workforces' ability to react to economic structural change. Overall government policy, however, has unequivocally increased workforce flexibility.

Britain: Score: +1

The British Government's "Welfare to Work" program provides incentives to work by withholding social assistance when high quality employment options exist. The "New Deal" initiative was designed to provide 18-24 year olds with private sector work experience (through employer subsidies) or further education and training. The recently announced "Working Families Tax Credit" which is provided through the "pay packet", will reward work rather than the acceptance of social assistance by reducing tax on earned income. Recognizing that non-wage costs inhibit employment growth, "National Insurance Contributions" (NIC's) have been reformed to exempt NIC charges from employees earning less than Pounds 64/week with a standard 2% for all Income above Pounds 64/week. The Employers' NIC contribution has similarly been eliminated for employees earning less than Pounds 81/week with a flat 12.2% rate on the balance of wage. These changes will create a positive incentive to utilize low wage employees. Finally, a new "Minimum Wage" is designed to "make work pay" and create more incentives to work rather than receive social assistance.

With regard to education and training, the British Government has allocated Pounds 1.0 billion to schools as a one-time expenditure form the "Contingency Reserve" established in the November 1996 budget. Moreover, during the life of the current Parliament (3-4 years), Pounds 1.3 billion from the special "Windfall Tax" on recently privatized utilities will be provided to improve the physical condition of school buildings. The Government has also accepted the "Excellence in Schools" White Paper which recommends raising school standards and increasing the participation rates of 16+ year olds in school. To encourage "life long learning", a "University for Industry" has been established which will offer correspondence courses and distance learning. The Government will provide 1 million people with an "Individual Learning Account" consisting of Pounds 150 in an effort to finance access to skills training.

Germany: Score: 0

In February 1998, the German Government introduced an "Initiative for More Employment". This modest program was adopted with the provisio that it not incur any cost to the federal Government. Moreover, in stark contrast to French-style employment plans, Federal Labor Minister Norbert Blum recently rejected calls for a 30-hour workweek to increase employment.

In March 1998, Federal Economics Minister Gunner Rexrodt stated that employment would only rise if wage increases trailed productivity gains. Mr. Rexrodt also reiterated the Government's pledge to reduce tax levels, simplify tax rules, and create more flexible labor markets. It appears that the government implicitly accepts that unemployment is the result of high wages and wage related costs, rather than a consequence of insufficient demand in the economy or poor productivity. German action on these efforts has been infrequent. Jobless benefits approach two-thirds of the former net wage. Social security contributions and other non-wage costs exceed 80% of wage costs. Government critics often cite these circumstances as causes of high unemployment. Thus, while the German Government has identified economic problems and certain policy prescriptions, it has failed to execute significant reforms.

With respect to education and training, vague pledges to update vocational training regulations and occupation descriptions have been made. Additionally, promises to alter university education by potentially shortening the length of study have also been made. Inaction on these initiatives, however, continues.

Japan: Score: +1

In order to overcome the recent uncertainties of the Asian Financial Crisis, Japan has maintained its commitment to continuing the "Action Plan for Economic Structural Reform adopted on 16 May, 1997. At the center of this policy had been an attempt to ensure that Japan's levels of unemployment remain low. For various reasons; among them, the high percentage of family and self-employed workers and the practice of so-called "life-long employment" Japan still has managed to avoid the large scale unemployment which is being felt throughout Asia which some say is as a result of its inability to fully cope with the
externalities of its policies.

However, unemployment levels in Japan have reached record levels. For the
month of March 1998, a record 160,000 workers were laid off, taking the
official total of those without employment to 2.46 million, or 3.6 per cent
of the work force. Significant job losses occurred in construction and manufacturing, following sharp falls in consumer spending. While these numbers are enviable compared to the double-digit levels seen in Western Europe, or even the 5 to 6 per cent in the US, they are devastating in Japan, where welfare provisions are few.

As part of its efforts to tackle the growing unemployment problem, Japan
hosted a Jobs Conference in Kobe on the 28th and 29th of November, 1997.
Building on the consensus reached at Lyon Summit in 1996 and the Denver
Summit in 1997, Ministers responsible for labour and industry from the G-8 countries and the European Commission tackled policy directions and challenges arising from such structural changes as global competition, accelerating technological innovation, and rapidly aging societies. The individual action plans formulated all had in mind the "Promotion of Smooth Adjustment to Structural Changes" and the "Realization of an Active Working Society"
Japan's individual action plan sought to i) foster a business environment
that is attractive to Japanese as well as foreign companies; and ii) to prevent the increasing public burden from undermining economic growth. All this was conducted with the intent of establishing an environment favourable to the creation of new industries, the enabling of venture partnerships to facilitate capital inflows from foreign investors, and to promote entreneurship of
enterprises. For Japan's youth, which has been affected the most by job
losses, Japan promised to play an important role in promoting comprehensive
policies for youth employment and training.

After intense pressure from its G-8 partners, the IMF, the countries
surrounding Japan and with mounting domestic unrest within Japan itself,
Hashimoto announced a 16 trillion yen (US$120 billion) package of public
works and other measures to stimulate dormant demand in the country. Two
weeks later, Hashimoto announced four-trillion yen ($30.5-billion U.S) in
tax cuts - again to appease international and domestic sceptics. The attempts to stimulate the Japanese economy out of crisis will certainly play a large part at the Birmingham Summit of the Eight. Most international observers such as IMF Managing Director Michael Camdessus and U.S. Treasury Secretary Robert Rubin are talking a wait and see attitude.

In terms of employment, however, although the economy seems to be beginning a deflationary spiral the countries overall employment troubles have been recognized as strong. The country ranked first for the second year in a row among 20 major industrialized nations in an employment survey conducted by a panel of experts on economics. The survey is based on such employment-related figures as growth rates of employed people, joblessness rates, growth rates of wages and other labor costs, and the number of strikes. Because of
Japan's low-long term unemployment rates, steady currency values and social
stability, the nation easily finished first. The economists noted that stable employment was achievable when economic, labour, fiscal and wage policies were adhered to.

Italy: Score: 0

At the Kobe Jobs Conference on 28-29 November, 1997, the Italian Government submitted their "Individual Action Plan" and stated that legislation was in place to broaden the range of programs designed specifically for bringing young people into the job market. The document, which was specifically concerned with the "promotion of smooth adjustments to structural changes", argued that new opportunities would arise through greater flexibility and by means of incentives to business to foster initiatives at the local level. The Prodi Government is in the process of increasing flexibility in the job market by implementing measures which include: training contacts, part-time contracts in the south, fiscal exemptions to set up new businesses, and government supported "work fellowships" to provide young people with work experience. Recent legislation has also introduced provisions for training and guidance programs for young people within companies to enhance knowledge of the productive system and promote occupational flexibility.

In March 1998, Prodi's Government set forth a plan that will see thirty northern Italian companies invest in the southern regions. In its three-year Economic Plan (1999-2001) unveiled in April 1998, Prodi's Government made it evident that employment was a major priority in Italy. The budget document, known as the Dpef, estimates that the unemployment rate will fall from the current 12.2% to 11.5% in 1999 and to 10.5% in 2001. Over the three-year period, the Government predicts that 600,000 - 7000,000 new jobs will be created. The Dpef states that during 1998, approximately one million young people (200,000 or more) will have the opportunity to be employed by means of apprenticeships, internships and training contacts.

Canada: Score: +1

The "Canada's Job Strategy" policy paper presented at the November 1997 Kobe Jobs Conference stated that "Canada does not believe that the marketplace alone can address all of the ledges that we face." The government has targeted macroeconomic policy, modernizing governance, human capital investment and promoting trade expansion as key activities they can undertake to address perceived marketplace inadequacies. Highlights of activities that expanded the availability of high quality education and training, and increased the responsiveness of labor markets to economic conditions are: 1) the Government achieved a zero deficit in the 1998-99 fiscal year, which would take the government out of the competition for scarce investment funds and allow the private sector to create more job opportunities; 2) the Government announced its $2.5 billion "Canadian Opportunity Strategy", which included features that would assist student debt loads, allow individuals tax-free retirement savings withdrawals for education, establish a Canada Millennium Scholarship, provide study grants, create Canada education savings grants, increase computer access at schools and double funding to youths at risk; 3) the Government launched a negotiation between the federal, provincial and territorial governments to establish a framework agreement for Canada's social union - youth employment was placed as their top priority in this regard; 4) the Government signed a series of labor market development agreements with provinces and territories which will allow regional governments to design and deliver employment programs targeted to suit the needs of a given region; 5) the Government expanded an "Employment Insurance Adjustment" project which will ensure that every hour of work counts towards eligibility for benefits and encourages people to take all available work; and 6) the Government launched a national Internet site to assist Canadians of all ages searching for work.

Russia: Score: -1

The problems facing the Russian labour market have required that the Government adopt policies that go well beyond the scope of labor policy. Some progress has been made by the Russian Government in proposing reforms of taxation and other structural areas such as industrial policy and small business development, which are necessary for improving the environment for entrepreneurship, business and investment. Other important areas, such as the improvement of social protection, expanding the availability of market responsive high quality education, and setting outstanding wage arrears, have remained largely unchanged. With respect to education and training more specifically, the Russian Government has had little success in promoting the relevance of educational systems to address the youth labor problems in light of the changing needs of the Russian economy. While the educational system has maintained its traditional strengths (universal early childhood education, achievement of high literacy rates, and a high degree of professionalism), it continues to suffer from inadequate resources that would enable it to implement much needed reforms.

The reshuffling of the Russian Government in March may provide a new opportunity to pursue these objectives more vigorously. However, the Russian Government continues to lack the authority and resources to implement its initiatives in this area. Without increased resources and greater political authority, there is a continued risk that the short-term pursuit of further reform in this area may come at the expense of Russian workers in other areas.

Reports produced by Steve Hudovernik, Jocelyn Neron, Nick Nikopoulos, Ray Pino, Vinay Saldanha , and Paul Skippen.

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