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Mr. Luc Everaert and Céline Allard
To live up to its growth potential and secure its inclusive social model, the euro area must make better use of its available labor. In the aftermath of the crisis, boosting growth is essential to prevent unemployment from becoming a long-term problem and to facilitate the return to fiscal sustainability. Labor utilization in the euro area has been lagging considerably behind its best performing peers. While fewer hours worked may, to some extent, reflect a social choice, higher unemployment rates and lower participation rates, on the other hand, cannot easily be attributed to individual preferences. Here, policies and institutions matter more. And there is little excuse for relatively low labor productivity, a particular bane in southern Europe and an increasing challenge everywhere. Kick-starting growth requires a comprehensive approach to labor and service market reforms. Different circumstances call for different approaches across countries. Countries in southern Europe need to focus on regaining competitiveness, while some in the core should promote higher labor force participation or more open service sector markets. Improving access to the labor market should be high on the priority list everywhere—including through some harmonization of key features of the labor market, which will help deal with intra-euro area imbalances. Differences in labor taxation, unemployment benefit systems, and employment protection will need to be reduced. Improving regulation and reforming taxes and social benefits will be essential to make inroads. For the longer term, focus should be on innovation, education, and on continuing financial sector reforms.
Johanna Schauer

Front Matter Page Asia and Pacific Department Contents Abstract I. Introduction II. How Has Duality Evolved in Korea? What is Its Current State? III. What is the Impact of Labor Market Duality in Korea? IV. What Explains Labor Market Duality in Korea? V. How Can Policy Address Labor Market Duality? A. What is Flexicurity and When Does it Work? B. A Model of Labor Market Duality C. Calibration to the Korean Economy D. Putting Flexicurity to the Test VI. Conclusion References Tables 1. Inequality by Employment Status 2

International Monetary Fund. Asia and Pacific Dept

target, and (iii) addressing labor market duality by promoting new hiring under contracts that better balance job security and wage increases. Success will require concurrent sustained and balanced fiscal and monetary support for demand. A credible fiscal consolidation plan is urgently needed to address Japan’s looming fiscal sustainability problem and create policy space . Replacing the planned 2 percentage point consumption tax hike in 2019 with a path of gradual increases of about 0.5–1 percentage points over regular intervals until the rate reaches at least 15

Ms. Lusine Lusinyan

three by 2018, including through longer hours of care and out-of-school care services. Removing the mandated employer-provided childcare (as currently considered). Improving flexibility in hours of work and promoting a better transition to full-time, permanent jobs, including through strengthening workers’ rights to request changes in working hours and the possibility to “reverse” from part-time to full-time hours, as in other countries (for example, France, Germany, the Netherlands, and Poland), and more generally addressing labor market duality. Investing in

International Monetary Fund. European Dept.

expand the Bank of Spain’s macroprudential toolkit. Directors welcomed the strong job creation and underscored the need to make the labor market more inclusive. They called for preserving the thrust of past labor market reforms. Directors encouraged the authorities to continue to address labor market duality, strengthen active labor market policies, enhance incentives for greater labor mobility across regions, and ensure wage flexibility. They emphasized that wage increases should be aligned with productivity growth. Directors underlined that raising productivity