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NORWAY UNITEDSTATES/ *s- -IF-J- ->." /riALY /rtAiY /''.*"' a.,. /UNITED >?r*T*f *v*~'*\V*\ .-:.> / SWEDEN/S D/TURKEY NLAND/FRANCE/GERMANY/GREECE/1 PORTUC KEY 1. £;£i: DA/DEI IREECE/ ALAND A/BELG ERLANC !SPAIN/ gaSa 1-22/27 P (MIT) E 3 RK7 / /GREECE/ *WAY NITEDSI (CANADA/ /HNLAND ITALY/) NORWAY/PORTUCAL/SPAIN/ KIN _ (cid:9) . /BELGIUM/CANADA/D / OECD ECONOMIC SURVEYS AUSTRIA ORGANISATION FORECONOMIC CO-OPERATION AND DEVELOPMENT Pursuanttoarticle1 oftheConventionsignedinParison 14thDecember, 1960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation for Economic Co-operation and Development (OECD) shall promote policiesdesigned: - toachievethe highestsustainableeconomicgrowthandemployment andarisingstandardoflivinginMembercountries,whilemaintaining financial stability, and thus tocontribute to thedevelopment ofthe worldeconomy; - to contribute to sound economic expansion in Member as well as non-membercountriesin theprocessofeconomicdevelopment; and - to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obliga¬ tions. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, theNetherlands, Norway, Portugal, Spain,Sweden,Switzerland,Turkey,theUnited Kingdomand theUnited States. The following countries became Members subsequently through accessionatthedatesindicatedhereafter:Japan(28thApril,1964),Finland (28thJanuary, 1969), Australia (7thJune, 1971) and New Zealand (29thMay, 1973). TheSocialist Federal Republic ofYugoslavia takes part in someofthe workoftheOECD (agreement of28thOctober, 1961). Publiéégalementen français. ©OECD, 1988 Application forpermissiontoreproduce ortranslate allorpartofthis publicationshould bemadeto: HeadofPublicationsService,OECD 2,rueAndré-Pascal, 75775 PARISCEDEX 16,France. Contents Introduction I. The background to the new policy orientation 9 Slowing ofthe growth process 9 Rising unemployment 13 Widening budget deficits 15 II. Thenew economic programme 17 The need for adjustment 17 Key features ofeconomic policy 18 Enhancing supply responsiveness 18 Restoring the room for manoeuvre in fiscal policy 19 Monetary policy and developments 28 HI. Recent trends and prospects 34 Recent trends 34 Short-term prospects 39 IV. The problem ofrising unemployment: challenges ahead 42 Emergence and characteristics ofhigh unemployment 42 The nature ofpresent unemployment 46 Non-cyclical unemployment 48 Policy issues 58 V. Conclusions 62 Notes and References 66 Annexes: I. Institutional features of the labour market 69 II. Estimation ofwage equations 72 III. Calendar of Main Economic Events 75 Statistical annex 77 Tables Text 1. Business sector output, labour and capital growth 12 2. Total output growth and sectoral contributions 12 3. Contributions ofdemand components to real GDP growth 13 4. Federal government debt and debt servicing 16 5. The Federal Budget 20 6. Fiscal indicators 22 7. Federal government subsidies and guarantees 24 8. Pension insurance 26 9. Federal outlays related to the labour market 26 10. Monetary indicators 32 11. Export performance and competitiveness 35 12. Terms-of-trade gains 35 13. Appropriation account for households 36 14. Demand and output 37 15. Current external balance 38 16. Costs and prices 39 17. Short-term prospects 41 18. Unemployment trends 44 19. Incidence of long-term unemployment by age and gender 44 20. Arithmetical decomposition of unemployment 46 21. Indicators ofcapacity utilisation 47 22. Employment rigidity and real wage flexibility (business sector) 55 23. Wage differentials 61 Annexes Real and nominal wage rigidity 73 Statistical annex A. Gross domestic product 78 B. General government income and expenditure 79 C. Output, employment, wages and productivity in industry 80 D. Retail sales and prices 81 E. Money and banking 82 F. The Federal budget 83 G. Balance ofpayments 84 H. Merchandise trade by commodity group and area 86 Diagrams Text 1. Relative economic performance 10 2. Growth of aggregate output 11 3. Unemployment in Austria and Europe 14 4. Fiscal balances in Austria and Germany 15 5. Avoiding the debt trap 23 6. Hard-currency policy 29 7. Interest rates 31 8. The unemployment gap 43 9. The Beveridge curve 49 10. Labour market indicators 50 11. Labour costs and total supply deflator 52 12. Labour cost, productivity and employment 53 13. The Okun curve 54 14. International competitiveness 56 15. Persons affected by labour market measures 59 Annexes The institutional framework for wage bargaining 70 BASIC STATISTICS OF AUSTRIA THELAND Area(thousandkm2) 84 Majorcities, 1981 census(thousandsofinhabitants): Agriculturalarea(thousandkm2), 1987 34 Vienna 1 531 Exploitedforestarea(thousandkm1) 32 Graz 243 Linz 200 Salzburg 139 Innsbruck 117 THEPEOPLE Population,01.01.87(thousands) 7555 Netmigration, 1985 8000 perkm: 90 Totalemployment',monthlyaverage 1986 2780204 Netnaturalincreaseinpopulation, 1986 -107 ofwhich: Naturalincreaserateper I000inhabitants, 1986 0.0 inindustry1 558822 PRODUCTION GrossDomesticProduct, 1986(Sch.billion) 1433 Industrialorigi Imarketprices, 1986(percent) perhead(USJ) 12421 Agriculture Grossfixedinvestment, 1986: Industry percentofGDP 22 Construction perhead(US$) 2787 Other THEGOVERNMENT Publicconsumplion, 1986(percentofGDP) 19 CompositionofFederal Parliament,November 1986: Generalgovernmentcurrentrevenue. 1986 Socialist Party 90 (percentofGDP) 48 Austrian People'sParly 77 FederalGovernmentdebt,end 1986(percentofGDP)43.0 Liberal Party 18 Greens Lastelection: 1986 FOREIGNTRADE lixporls: Imports: Exportsofgoodsandservices, 1986 Importsofgoodsandservices, 1986 (percentofGDP) 37 (percentofGDP) 36 Exports, 1986(percentoftotalmerchandiseexports): Imports. 1986(percentoftotal merchandiseimports): Food,tobacco,beverages 4 Food,tobacco,beverages 6 Rawmaterialsandenergy 7 Rawmaterialsandenergy 14 Chemicals 9 Chemicals 10 Machineryandtransportequipment 33 Machineryandtransportequipment 34 Otherfinishedandsemi-manufacturedproducts 48 Otherfinishedandsemi-manufacturedproducts 36 THECURRENCY Monetaryunit:Schilling CurrencyunitsperUSdollar,averageofdailyfigures: Year 1987 12.64 December 1987 11.51 1. Wageandsalaryearners. 2. Includingadministrativepersonnel. Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable. This Survey is based on the Secretariat's study pre¬ paredfor the annual review ofAustria by the Economic and Development Review Committee on 1st De¬ cember 1987. After revisions in the light ofdiscussions during the review, final approval ofthe Survey forpublication was givenbythe Committeeon 17thDecember1987. The previous survey of Austria was issued on July 1986. Introduction Through most ofthe 1970s and thefirst halfofthe 1980s, Austria outstripped theeconomicperformanceofmostEuropeanMembercountries:growthofpercapita real income was faster, unemployment and inflation were lower, and the external position remained relatively comfortable. The particular Austrian approach to economic management -combining an active fiscal policy with a hard-currency policyand social partnership-appeared able toprevent both domesticand external imbalances from building up to the extent experienced elsewhere. In international fora,includingtheOECD, theAustrianperformancewassingled outas anexample of macroeconomic policies that succeeded in absorbing and counteracting severe external supply and demand shocks. In recent years, though, it has become clear that the recovery from the post-OPECII recession in 1980-82 has lost momentum, with domestic imbalances developing -notably in the form of higher unemployment and rapidly increasing public debt. These developments have prompted the new coalition Government, formedinJanuary 1987,tosetnewpolicypriorities,stressinginparticulartheneedto speed up structural adjustment in the business sector -both private and national¬ ised- and to contain the upward trend in government indebtedness. The new policy programme presented in early 1987 is being implemented against the background of an unfavourable international environment ofrelatively sluggishdemand.Therefore,realGDP,estimatedtohaveincreasedbynomorethan 1 percentin 1987,maynotgrowmuchfasterinthenextfewyears,probablyentailing growingslackinthelabour market.Ontheotherhand, inflation,thoughpickingup, should remain low by both Austrian and international standards and the current external position should remain in broad balance. Part I ofthe present Survey reviews the main features ofworsening economic trends,whichhaveledtoachangeofpolicies.Thenewpolicyprogrammeisdiscussed inPart II,followedbyabriefreviewofdevelopmentsin 1987,andthepresentationof the Secretariat projections for 1988 and 1989 in Part III. Part IV focuses on the unemployment problem and assesses the possibilities of maintaining a reasonable balance in the labour market in the face ofstringent budgetary policies. The main findings of the Survey and some policy considerations are presented in the Conclusions. I. The background to the new policy orientation The authorities' perception of an urgent need for reorienting macroeconomic policies did not only result from the disappointing response of the economy to the largeterms-of-tradegains in 1986. Itwas alsofounded on a widercomprehension of the underlying trend deterioration of aggregate economic performance after the second oil shock in 1979. Until then, and in terms of broad macroeconomic aggregates, Austria had clearly done better than most OECD European economies (Diagram 1,Panel A). Butoverthelastfivetosixyearsorsoanumberofdisquieting features have emerged (Diagram 1, Panel B): - Economic growth has slowed markedly, hampering structural adjustment, while at the same time increasing pressure for subsidies to the business sector; - Unemployment has risen to very high levels by post-war Austrian stan¬ dards; - Government budget deficits have attained proportions where they severely constrain the use of fiscal policy for counter-cyclical purposes. Slowing of the growth process Although economic growth between 1973 and 1986 has on average held up betterthan inOECDEuropeasawhole, Austria hasnotbeen sparedtheexperience ofaratherdramaticslowdown.Indeed,adjustedforcyclicalvariations,growthofreal GDPhassteadilyratcheteddownfromanannualrateof6 percentintheperiod 1968 to 1973 to 3 per cent between 1973 and 1979, and further to 13A per cent in the post-OPECIIperiodto 1986. Asindicatedin Part III,theoutlookfor 1987 and 1988 is for GDP growth of 1 per cent and 1Vaper cent respectively (Diagram 2).