Input Paper for Structural Reform Ministerial Meeting

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2021/SOM1/EC/006b Agenda Item: 8

Input Paper for Structural Reform Ministerial Meeting: Topic 1 - Advancing Progress of

Unfinished Business from Renewed APEC Agenda for Structural Reform for Inclusive Growth; Topic 2 - Leveraging Structural Reform for Improved Labour

Productivity and Sustainable Growth (Endorsed Intersessionally on 20 November 2020)

Purpose: Information

Submitted by: Viet Nam

First Economic Committee Meeting4-5 March 2021

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Input Paper for Structural Reform Ministerial Meeting Topic #1 - Advancing progress of unfinished business from RAASR for inclusive growth Topic #2 - Leveraging structural reform for improved labour productivity and sustainable growth

FINAL PAPER November 2020

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Prepared by: Vishal Beri and Dr Peter Hendy Aegis Consulting Group PO Box 243 Pyrmont NSW 2009 Australia Tel: (02) 96982290 Email: [email protected]. Website: www.aegisconsultgroup.com Produced for: Asia-Pacific Economic Cooperation Economic Committee APEC#

This work is licensed under the Creative Commons Attribution‐NonCommercial‐

ShareAlike 3.0 Singapore License. To view a copy of this license, visit

http://creativecommons.org/licenses/by‐nc‐sa/3.0/sg/.

The views expressed in this paper are those of the authors and do not necessarily represent those of APEC Member Economies. The information provided in this document, or any related attachments, is for general information purposes only. Any reference to laws and regulations is not intended to constitute legal advice or representation of any kind.

Input paper for Structural Reform Ministerial Meeting

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CONTENTS Section 1: Introduction ......................................................................................................................... 4 1.1 Purpose of this paper ......................................................................................................................... 4 1.2 Methodology ..................................................................................................................................... 4 1.3 Limitations of this paper ................................................................................................................... 5 1.3 Structure of recommendations .......................................................................................................... 6 Section 2: Impact of COVID-19 ........................................................................................................... 7 2.1 Projections about GDP growth ......................................................................................................... 7 2.2 Potential effects on the issues examined in Topics 1 and 2 .............................................................. 9 2.3 General principles to govern structural reform when pursuing the issues in Topics 1 and 2……. 13 Section 3: Advancing progress of unfinished business from the RAASR 2016-20 for inclusive growth (Topic #1) .......................................................................................................... 14 3.1 Background ..................................................................................................................................... 14 3.2 Work by the EC to implement RAASR in 2016-20 ........................................................................ 15 3.3 Key lessons for the 2021-25 agenda from 2016-20 actions ........................................................... 16 3.4 Overview of recommended 2021-25 agenda .................................................................................. 22 3.5 Policy recommendations ................................................................................................................. 24 3.6 Process recommendations. .............................................................................................................. 31 Case study 1: Canada gender budgeting ............................................................................................... 37 Case study 2: New Zealand well-being framework .............................................................................. 41 Section 4: Leveraging structural reform for improved productivity and sustainable growth (Topic #2) ............................................................................................................................... 45 4.1 Background ..................................................................................................................................... 45 4.2 Current APEC priorities ................................................................................................................. 50 4.3 Key lessons for the 2021-25 agenda from 2016-20 actions ............................................................ 51 4.4 Overview of recommended 2021-25 agenda .................................................................................. 55 4.5 Policy recommendations ................................................................................................................. 57 4.6 Process recommendations ............................................................................................................... 65 Case study 3: Chinese Taipei women’s labour productivity ................................................................. 73 Case study 4: Brunei Darussalam’s sustainable growth ...................................................................... 76 Section 5: Appendices ........................................................................................................................ 78 Appendix 1 Assessment framework for priorities in the 2021-25 agenda ............................................ 78 Appendix 2 Work by the EC to progress the 2016-20 RAASR ............................................................ 79 Appendix 3 Themes arising from analysis of 2016-20 RAASR implementation ................................. 82 Appendix 4 OECD inclusion framework .............................................................................................. 90 Appendix 5 APEC Action Agenda on Advancing Economic, Financial, and Social inclusion ............ 91 Appendix 6 World Bank policies to boost productivity ........................................................................ 93

Introduction

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List of Tables Table 1: The RAASR in operation ........................................................................................................ 14 Table 2: Pillar 1 - Summary of some common core reforms undertaken in 2016-20 ........................... 18 Table 3: Pillar 2 - Summary of some market deepening reforms undertaken in 2016-20 .................... 20 Table 4: Pillar 3 - Summary of some social policy reforms undertaken in 2016-20 ............................ 21 Table 5: Key regulatory and administrative efficiency principles recommended by the OECD .......... 34 List of Figures Figure 1: IMF forecast for GDP growth ................................................................................................. 8 Figure 2: APEC GDP growth, actual (2000–2019) and projected (2020–2021) (%) ............................. 9 Figure 3: World Bank forecast short-term impacts on consumer welfare from COVID-19 ................. 12 Figure 4. Women’s labour force participation in APEC economies ..................................................... 60 Figure 5: Unemployment rate (%) of males and females aged 25-34 with tertiary education .............. 61 Figure 6: Trends in vulnerable employment in APEC .......................................................................... 64 Figure 7: Global movement of labour income share of GDP 2004-2017 ............................................. 67 Figure 8: Global change in income share of GDP for selected regions 2004-2017 .............................. 68


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SECTION 1: INTRODUCTION

1.1 Purpose of this paper This paper has been prepared by Aegis Consulting Group (the consultants) commissioned by the Economic Committee’s (EC’s) Renewed APEC Agenda for Structural Reform (RAASR) Action Team. This paper is intended to inform the development of the 2021-25 structural reform agenda and advice to the Structural Reform Ministers Meeting (SRMM). This paper covers two topics determined by the EC. These are: Topic 1 - Advancing progress of unfinished business from the Renewed APEC Agenda for

Structural Reform (RAASR) 2016-20 for inclusive growth; and Topic 2 - Leveraging structural reform for improved labour productivity and sustainable growth.

For the purposes of this assignment ‘sustainable growth’ means the long-term growth trend (in connection with labour productivity issues), rather than the commonly perceived issue of environmental sustainability.

The two topics are addressed in two separate sections as instructed by the EC. However, a common theme that informs the discussion on each topic is the importance of using structural reform to promote access to service, product and labour markets to avoid inequity and inter-generational disadvantage, particularly in response to the adverse economic and social impacts of COVID-19 on vulnerable groups. Recommendations in paper reflect this theme and are based on: Past lessons from the implementation of the 2016-20 RAASR by economies; Emerging economic and other issues the 2021-25 structural reform agenda should reflect, especially

COVID-19; and The views of economies expressed during consultation on the paper and in response to specific

questions asked by the consultants.

1.2 Methodology The analysis and recommendations in the paper have been developed on the basis of research and stakeholder consultation.

1.2.1 Research The consultants have reviewed a range of material including: The APEC Action Agenda on Advancing Economic, Financial, and Social inclusion. The EC’s policy framework for structural reform agreed in 2018. Previous initiatives undertaken by the EC to pursue structural reform, such as workshops on priority

issues and collaboration with other APEC fora. The advice of the High‐Level Structural Reform Officials’ Meeting in 2018 on priorities and gaps

in the structural reform work agenda. The EC’s APEC Economic Policy Reports (AEPRs) from 2016-2019. The mid-term and final RAASR reviews prepared by the APEC Policy Support Unit (PSU). The individual RAASR reports of economies. The APEC Regional Trends Analysis from 2017-2020, prepared by PSU. PSU publications related to APEC performance and COVID-19. The report of the APEC 2040 Vision Group. The submissions of the APEC Business Advisory Council (ABAC) and the Pacific Economic Co-

operation Council (PECC) to the APEC 2040 Vision Group.

Introduction

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International information on best practice structural reform. This includes published information by the Organisation for Economic Co-operation and Development (OECD), World Bank, International Monetary Fund (IMF) European Bank of Reconstruction and Development (EBRD), United Nations (UN) and International Labour Organisation (ILO).

International information on the economic impacts of the COVID-19 pandemic. This includes published information by the OECD, World Bank, and IMF.

1.2.2 Stakeholder consultation The consultants have undertaken a range of consultation. For example, they have: Collaborated with the RAASR Action Team and received advice from that Team on the content,

direction, and emphasis in the paper. Collaborated with the APEC PSU, including in relation to common findings with the RAASR final

review. Received responses from some economies to six key questions asked by the consultants in an Issues

Paper on the two topics. Obtained feedback from economies on a series of drafts of the paper. Presented the draft report and recommendations to the EC in July 2020.

1.2.3 Case Studies The RAASR Action Team requested that where possible the case studies in the paper cover: A mix of examples of what (1) economies have done to implement RAASR for inclusive growth,

sustainable growth, and improved labour productivity and (2) what actions can be taken to improve the design and measurement of structural reforms to enhance their contribution to inclusive growth, sustainable growth, and higher labour productivity; and

One example of how COVID-19 may impact inclusive growth. The consultants have obtained case studies from the following economies for use in the paper. Canada action for inclusive growth via gender budgeting (Topic 1). New Zealand Government’s approach to embedding wellbeing into policy development (Topic 1). Chinese Taipei action for labour productivity via training for women (Topic 2). Brunei Darussalam action for sustainable growth via productivity and employment (Topic 2).

1.2.4 Assessment framework The consultants developed an assessment framework to assist the identification of gaps and priorities in structural reform actions, given the COVID-19 impacts. This framework was used to consider the impact of 2016-20 actions by economies to progress structural reform and the possible effect of future actions needed to respond to emerging issues. The assessment framework is in Appendix 1.

1.3 Limitations of this paper The paper assumes a detailed level of knowledge with the EC about the issues being assessed.

The RAASR Action Team has instructed the consultants that they do not need to explain structural reform, the prevailing pre-COVID 19 economic environment, the meaning of and barriers to inclusion, labour productivity, and sustainable growth issues in any detailed way as the EC is fully aware of these issues.

The paper does not assess digital economy issues affecting structural reform. The EC has commissioned a separate input paper (Topic 3) for the SRMM on the impact of the digital economy


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on structural reform. Accordingly, the EC has instructed the consultants not to assess issues related to this.

The paper is not intended or required to review delivery of the 2016-20 RAASR by all 21 economies. That evaluation is being undertaken by the APEC PSU in its final review of the 2016-20 RAASR.

The EC has asked the consultants to assess Topics 1 and 2 separately. There is an overlap

between the structural reform issues underpinning Topics 1 and 2 and thus there is some unavoidable duplication in the analysis in each section. However, the consultants have attempted to limit repetition as much as possible.

The recommendations in the paper are based on general assumptions about the benefits of

structural reform for inclusive and sustainable growth and labour productivity. In their RAASR mid and final review responses economies are not asked to report the actual evaluated outcomes of their structural reform actions on inclusive and sustainable growth and labour productivity. This occurs largely because the 4-year RAASR timeframe does not provide economies with the opportunity to also report the longitudinal impact of their reforms. Accordingly, it is only possible to assume that structural reform has general benefits. The consultants have relied on these general benefits in their assessment.

1.4 Structure of recommendations In developing the recommendations particular attention has been given to the need for structural reform to acknowledge and respond to the adverse impacts of the COVID-19 pandemic on economic and market activity, particularly the high risk of economic and social exclusion and inequity arising from severe disruptions to supply chains, consumption and labour markets. Consultations with economies suggests that there is strong support for the 2021-25 agenda to be focussed on meeting the risks and challenges created by the COVID-19 pandemic via holistic policy approaches that prioritise economic and social equity and resilience. The recommendations include: Policy initiatives to enable structural reform to build on the activities in 2016-20, continue to

deliver inclusive and sustainable growth and improved labour productivity, and respond to the COVID-19 impacts via the three approaches in 2018 EC policy framework. These approaches are: Delivering the six core structural reforms to improve market function and transparency. Implementing specific market reforms to improve the competitiveness of business and labour

and achieve pro-inclusion benefits. Adopting a holistic approach to structural reform which combines core reforms, specific market

reforms and broader policies to promote social inclusion and equity.

Process initiatives to enhance the collection, reporting and evaluation of information and data to better support the capacity of the EC to compare the implementation and results of structural reform in economies and share lessons.

Introduction

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SECTION 2: IMPACT OF COVID-19

2.1 Projections about GDP growth

2.1.1 IMF forecasts in April The IMF’s April 2020 World Economic Outlook estimated that global GDP growth will be severely affected by the COVID-19 pandemic at least in 2020 and potentially into 2021 depending on the success of preventing further outbreaks of the virus. It estimated that about 100 million people worldwide may have been pushed into extreme poverty. It considered three scenarios1. Scenario 1. Assuming that the pandemic peaks in the second quarter of 2020 for most economies

and recedes in the second half of the year, it estimates that global economic growth will contract to -3 percent. This represents a downward revision of 6.3 percent from the January pre-pandemic forecast.

Scenario 2. If the pandemic recedes in the second half of 2020 and actions by economies are successful in avoiding widespread business closures, long-term unemployment, and financial system constraints, it estimates that global growth will increase to 5.8 percent in 2021. This growth rate remains below those forecast pre-pandemic as full economic recovery will take time. It is estimated that the loss of economic output in 2020 and 2021 would be about $9 trillion dollars.

Scenario 3. If the pandemic does not contract in 2020 and continues to affect global supply chains, business operations and employment then growth in 2020 could decline by a further 3 percent. If the pandemic and its impacts continue in 2021, it is estimated that GDP growth could fall by an additional 8 percent.

In scenarios 1 and 2, the IMF calculated that advanced and emerging economies are in recession and this has not occurred since the Great Depression.

2.1.2 IMF forecasts in June In June, the IMF updated its projections and suggests that the impact of COVID-19 is worse than previously estimated, and recovery will be slower than previously anticipated2. The IMF point outs that: The economic downturn is deep and synchronised with high frequency indicators suggesting that

the contraction in Gross Domestic Product (GDP) in most economies was severe in Q1 2020 and likely to be worse in the second quarter.

The estimated global growth rate in June was -4.9 percent, 1.9 per cent lower than April. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020.

The synchronized nature of the downturn has intensified contractions in international trade, which fell by about –3.5 percent (year over year) in the first quarter of 2020. This reflected overall weak demand, the collapse in cross-border tourism, and disruptions to supply chains from business and society shutdowns needed to combat the pandemic.

1 IMF, World Economic Outlook, Chapter 1, April 2020 2 IMF, World Economic Outlook, June 2020


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Consumption and services output have uniquely shrunk at the same time. Consumption has fallen because of community lockdowns and social distancing, significant reductions in income due to rising unemployment and underemployment and weaker consumer confidence. Investment in services output has contracted in response to decreased demand, supply chain interruptions, and future revenue uncertainty. Public health responses to spikes in infection rates depend on intermittent lockdowns and this exacerbates demand, investment, and supply uncertainty.

There has been a catastrophic impact on the global labour market, with a projected decline in work

hours between Q1 2019 and Q4 2020 equivalent to 300 million full time jobs. The labour market impact has been uneven by gender and employment security. For example, women in lower income occupations have borne the larger brunt of unemployment in many economies and 80 percent of the world’s informal workers have been significantly affected.

The adverse impact on low-income households is particularly acute, and this is a serious threat to

the significant progress made in reducing extreme poverty in the world since the 1990s. Of the 2.5 billion informal workers in the world, it is estimated that about 80 percent are affected by the economic impacts of COVID-19.

Figure 1: IMF forecast for GDP growth3.

Source: IMF World Economic Outlook June 2020

Based on IMF data in April, the PSU has estimated that about 40 percent of COVID-19 cases have occurred to date in the APEC region and that the pandemic is likely to contract GDP growth by 2.7 percent, slightly less than the global decline estimated by the IMF. This slowdown in growth is anticipated to result in the unemployment of about 23 million people and represent a loss of about USD$2 trillion in output, or about 25% of the IMF’s projected total global output loss. The decline in economic output is worse than the near zero growth rate experienced during the 2008-09 global financial crisis4.

3https://www.imf.org/~/media/Images/IMF/Publications/WEO/2020/June/English/WEOarrowsJune2020.ashx?la=en 4 PSU, APEC in the Epicentre of COVID‐19, Policy Brief No.31 April 2020 and PSU APEC Regional Trends Analysis May 2020

Introduction

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Figure 2: APEC GDP growth, actual (2000–2019) and projected (2020–2021) (%)5

Source: Economy sources; IMF World Economic Outlook (April 2020); APEC PSU staff calculations.

2.2 Potential effects on the issues examined in Topics 1 and 2 When considering the 2021-25 structural reform agenda, the EC and economies will need to factor in the nature of economic policy priorities in the post-pandemic environment. The COVID-19 pandemic is still unfolding. It has had a massive impact on the world economy and is causing recessionary conditions not seen in generations. It is likely to exacerbate existing barriers to economic inclusion, labour productivity, and sustainable growth, and create new barriers. Possible issues, impacts and government responses include the following. The almost total disruption of travel and leisure, retail, transport, manufacturing, hospitality

and tourism, property, and other services sectors. Many businesses, particularly MSMEs, which existed before the crisis will no longer be trading in the post-pandemic environment. Accordingly, governments may need to dedicate structural reform and related financial resources to rapidly stimulate business creation and innovation to support economic activity. Previous EC recommendations concerning the ease of doing business are likely to be critical to this effort. Equally the crisis may accelerate the shift of consumer preferences and patterns to on-line purchasing of an increasing variety of consumables and this may redefine the nature of services and global supply chain structures to support services. Previous recommendations by the EC on services reform will be particularly relevant to the suite of responses economies may need to deploy to promote and regulate change.

The steep rise in unemployment, particularly for people with casual and part-time jobs, young workers, and female employees in disrupted industries. There are reports that women and young people have been hardest hit by unemployment because they predominate in industries and sectors

5 PSU APEC Regional Trends Analysis May 2020


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most affected by the crisis, such as retail, tourism, and hospitality6. The IMF estimates that these workers are particularly vulnerable because they cannot work from home due to the nature of their employment or poor access to digital technology and are in low income jobs. It suggests that on average 15 percent of workforces in economies are in this situation, with obvious variations between advanced and emerging economies7. The unemployment levels for these workers may remain high in the post-pandemic environment unless and until they can transition into businesses which emerge or re-emerge in disrupted sectors and/or in new sectors which innovate in response to the crisis. Governments may need to increase education and training support and improve links between this and skills development relevant for employee transition and emerging firms and sectors. Lower paid casual or informal workforces may need additional support to ensure that they are well positioned to gain from future economic growth. Previous recommendations by the EC on human capital development, including the mobility of labour and training, will remain relevant to the response packages of economies and help to guide whole of APEC region benefits.

The reduction in income for workers as they lose their secure employment or are on unpaid

leave for an extended period of time. The IMF estimates that income per capita will fall in 170 economies around the world8. The reduction or loss in wages for workers may have a detrimental impact on inclusion, particularly for lower paid casual or informal workforces. Where workers need to live off their savings for extended periods of time with or without government provided social benefits, they will be less able to secure credit to purchase consumables and assets in a post-pandemic environment. This may handicap consumption led future economic growth overall and reduce the economic inclusion of those workers. For those workers already on the margin, these impacts may further entrench inter-generational disadvantage. As a result, the design, implementation, and evaluation of future structural reform will need to dedicate more up front and integrated attention to avoiding and mitigating economic exclusion.

Spending on economic recovery may extend beyond what economies have dedicated to date.

Current responses include fiscal measures, such as direct subsidies or tax credits for businesses and spending on health systems, as well as monetary measures, such as quantitative easing (QE). In the post pandemic environment economies may need to increase stimulatory spending by investing in infrastructure development. New and emerging private asset owners may rely on these stimulatory measures and the benefits of QE to invest in government sponsored projects. In this context the previous EC recommendations regarding systematic, transparent, reliable, and accountable infrastructure planning, management and execution are relevant to ensure that resources are allocated efficiently and effectively to optimise economic growth and support inclusion. Where these recommendations are not applied there may be increased risks that some sectors and workers will not benefit from once off stimulatory packages that may not be applied again until the next economic crisis. This kind of dis-benefit may entrench inter-generational disadvantage for some social cohorts and increase pressure on governments for social benefit spending over the medium-long term.

Economies will need to deal with the long-term consequences of massive increases in public and private debt levels. Policy makers will need to take balance their responses to the other issues discussed above with this debt burden. There will need to be concerted efforts to reduce the

6 The Hon Scott Morison MP, Prime Minster of Australia in a speech to the Centre for Economic Development on 15 June, and Jerome H. Powell, Chair, United States Federal Reserve, in Semi‐annual Monetary Policy Report to the Congress, 16 June 7 https://blogs.imf.org/2020/07/07/teleworking‐is‐not‐working‐for‐the‐poor‐the‐young‐and‐the‐women/ 8 https://blogs.imf.org/2020/04/14/the‐great‐lockdown‐worst‐economic‐downturn‐since‐the‐great‐depression/

Introduction

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servicing costs of debt and international co-operation will be critical on how to mitigate the worst effects. This will be a key focus of Economic and Finance ministers as they will wish to ensure that similar risks of the kind of financial contagion that continued for several years after the Global Financial Crisis in 2008 is confronted collectively.

Economies may reassess globalisation and open markets as a result of the pandemic. This may arise because of the fear that close economic integration exposes economies to the risks of crisis not of their making and beyond their control and disables their capacity to be self-sufficient in their responses. For example, Governments may mandate stricter rules about the domestic production of pharmaceuticals and ancillary medical supplies. Governments and businesses may also look at diversifying their supply chains so that they are not held hostage to major disruptions in the future. Further domestic businesses like universities and tourism providers may seek to diversify their markets to reduce risks. Policy makers will need to weigh the balance of competing objectives. To inform these considerations the EC may consider establishing a taskforce to specifically look at the policy responses to this latest economic shock and ways to encourage globalisation in ways that preserve benefits and ring fence risks.

The World Bank suggests that COVID-19 is likely to lead to many of the shocks discussed above and other shocks to economic activity which can adversely impact the welfare and well-being of households and individuals in the following ways9: Reduce direct income through illness and indirect labour income through loss of employment, and

reduced wages caused by lower demand for business activities.

Change non-labour income such as by a reduction in remittances from migrant workers to their families, reduction in private transfers between households and lower charitable support. Public transfers to households, such as social safety net payments, may increase or decrease depending on the fiscal positions and priorities of governments.

Impacts on consumption may include changes in prices and reduced availability of goods and

services because of market, trade, and domestic production disruptions. This may increase the production costs, prices, and labour income. Household discretionary income may reduce in line with increases in health costs and price rises of other essential items. On the other hand, lower prices of oil and other commodities could lower inflation and overall costs for consumers.

Disruptions to education services, additional demand for health services and restrictions on general

mobility may adversely affect the non-financial welfare of consumers.

9 World Bank, Poverty and Distributional Impacts of COVID‐19: Potential Channels of Impact and Mitigating Policies, 16 April 2020


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Figure 3: World Bank forecast short-term impacts on consumer welfare from COVID-1910

Source: World Bank The adverse impacts on economic inclusion may vary for groups depending on a range of factors, but those already facing barriers to inclusion are likely to suffer the worst. For example, the World Bank predicts that these groups will be most vulnerable to the risks of slowing economies and the risks they experience can easily translate into ongoing inter-generational disadvantage: Households with limited income, savings, and access to insurance. Without sufficient social safety

nets to minimise these risks, households may need to sell productive assets and/or diminish investments in human capital. This can mean households lose their generational capacities for social mobility.

Women because of the following individual or cumulative factors – “(a) school closures and elderly care tend to burden time use of women; (b) women are more exposed to infection due to larger share of women in health and service sectors; (c) women face a higher likelihood of domestic violence during home confinement; and (d) some of the service sectors most affected by the economic shock have higher concentrations of female employment”11.

According to the World Bank, the economic exclusion risks facing particularly vulnerable groups may increase depending on12: The nature of their employment. Self-employed people and workers in the informal sector are

especially exposed to economic disruption, particularly if normal employment conditions and benefits do not accrue to them or emergency assistance provided by governments to does extend to them.

10 Ibid 11 Ibid 12 Ibid

Introduction

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The sector they work in. While services industries like retail, travel, tourism are likely to initially severely disrupted, other export exposed sectors like manufacturing and agriculture will also be affected as demand reduces. Over time secondary impacts are likely to occur in formal and informal sectors due to the linkages between firms and industries.

Whether they live in urban or regional areas. While health impacts and social distancing rules

and other measures will severely affect urban populations in the initial phases of the pandemic, economic impacts are likely to extend to regional areas and remain entrenched for longer as demand takes time to recover.

2.3 General principles to govern structural reform when pursuing the issues in Topics 1 and 2

The immediate economic impacts of COVID-19, including many economies instituting lockdown measures, has necessitated short term responses to keep economies going. To ensure that structural reforms promote inclusion, boost labour productivity, and apply the principles of sustainable growth economies can rely on some basic guiding principles when designing, implementing, and managing reforms. The principles which economies should consider are: The public interest derived from reform including where it is not in the public interest to undertake

reform. For example, the benefits of retaining anti-competitive regulation in some sectors, like primary production, may outweigh the costs of doing so.

The methods to enable business and communities adjust to the costs of reform and optimise the benefits.

The public policy and regulatory protections needed to avoid the socialisation of risks and privatisation of benefits.

Embedding evaluation frameworks to assess the ongoing impacts of reform when measured against indicators which reflect the ends economies wish to achieve.

The ongoing public sector investments that need to be made in services, subsidies, and other support to ensure that reforms do not reduce inclusion for any sectors of society.

COVID 19 will depress consumer spending, investment growth and net exports in most APEC economies. In this scenario ongoing “short-tern monetary and fiscal accommodative measures and medium-term structural reforms remain the key factors towards improved growth prospects going forward”.13 This is particularly where structural reform is used to make markets more competitive and attractive for investments in productivity enhancing activities such as education and training for skills and human capital development, research and development for innovation, and value-added services.

13 PSU, APEC Regional Trends Analysis, November 2019

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SECTION 3: ADVANCING PROGRESS OF UNFINISHED BUSINESS FROM THE RAASR 2016-20 FOR INCLUSIVE GROWTH (TOPIC #1)

3.1 Background Between 2016-20 the pursuit of structural reforms has been guided by the RAASR. The RAASR was developed from lessons learned during the implementation of two previous structural reform agendas. The Leader’s Agenda to Implement Structural Reform (LAISR) (2004-10); and APEC New Strategy for Structural Reform (ANSSR) (2011-15). The use of structural reform to stimulate balanced and sustainable growth and reduce inequality was made a key objective of the 2016-20 RAASR by APEC Structural Reform Ministers in 2015 when they affirmed the following:14 “The benefits of rapid economic growth have been unevenly shared both across and within individual APEC economies. We note that there are groups (e.g. women, older workers, and minorities), firms (e.g. micro, small, and medium enterprises (MSMEs)) and regions that have benefited proportionately less from economic growth and globalization. We are aware that inequality can undermine growth in the long-run by stunting private initiative and locking resources in low-productivity alternatives”. “We agree that structural reform, if implemented correctly, can provide for enhanced inclusion of hitherto underrepresented groups, firms, and regions by providing more opportunities to participate in and benefit from a growing economy”. The priority to address inequity was further endorsed by APEC Leaders in 2017, when they agreed to an Agenda on Advancing Economic, Financial and Social Inclusion (AAEFSI) in the APEC Region. This was aimed at capturing all APEC activities within an inclusive growth framework.15 Table 1: The RAASR in operation16

Objective Pillars to deliver objectives Core structural reform actions to deliver Pillars

Reduce inequality in economies. Stimulate growth in economies. Contribute to APEC’s

overarching goal to promote balanced, inclusive, sustainable, innovative, and secure growth.

1. More open, well- functioning, transparent and competitive markets. 2. Deeper participation in those markets by all segments of society, including MSMEs, women, youth, older workers, and people with disabilities. 3. Sustainable social policies that promote pillars 1 and 2, enhance economic resilience and are well-targeted, effective, and non-discriminatory.

Competition policy Regulatory reform Ease of doing

business Economic and legal

infrastructure Public sector

governance Corporate

governance

14 https://www.apec.org/Meeting‐Papers/Sectoral‐Ministerial‐Meetings/Structural‐Reform/2015_structural 15 https://www.apec.org/Meeting‐Papers/Leaders‐Declarations/2017/2017_aelm/Annex‐A 16 Aegis Consulting Group analysis based on APEC information

Topic 1:

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3.2 Work by the EC to implement RAASR in 2016-20

3.2.1 Policy framework In 2015 Structural Reform Ministers asked the EC to develop a policy framework on how structural reform, including those being initiated by other APEC committees and working groups, can contribute to inclusive growth. The subsequent policy framework developed and endorsed by the EC in 2018 proposed three possible pathways for structural reform to promote inclusive growth17. Approach 1 - Getting the basics right. Ensuring that basic policies and institutions are in place that support more open, well-functioning, transparent and competitive markets. This can be accomplished through the RAASR’s six core structural reforms Competition Policy and Law; Corporate Law and Governance; Regulatory Reform; Public Sector Governance; Strengthening Economic and Legal Infrastructure; Ease of Doing Business. However, it is recognised that these outcomes can create impacts which do not support inclusive growth. For example: Policies that increase competitiveness and economies’ access to global markets can create

inequality if they lead to industrial decline, narrow employment opportunities, or displace marginalised workforces.

Regulatory reform to achieve productivity improvements, such as subsidies for innovation or labour market reforms, can create inequality by increasing the demand for skilled labour and raising the wages of higher earners.

Approach 2 - Selecting pro-inclusion structural reforms and deepening their application. Many structural reforms can directly improve inclusive growth by supporting the competitiveness of labour and businesses. This approach suggests prioritising “pro-inclusion” market-deepening reforms such as: Digital economy like that recommended in the 2019 AEPR Infrastructure like that recommended in the 2018 AEPR Human capital development like that recommended in the 2017 AEPR Services like that recommended in the 2016 AEPR Innovation like that recommended in the 2015 AEPR. Approach 3 - The integrated approach. This incorporates the two other approaches and other broader policies and programs to promote social inclusion and equity. This is consistent with traditional policy approaches where macro policies including social welfare and development programs are used to soften the economic dislocation and other negative impacts of structural reform. These broader policies include: Strengthening the participation of women in economic life and efforts on financial inclusion for

women. Supporting MSMEs (including from remote areas). Human capital development, domestic social protection floors and promotion of basic labour

protection. Improving infrastructure.

17 See paper prepared by New Zealand and considered by the Economic Committee in 2018

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Rural and remote areas development and integration. Digital economy development. These broader policies and programs have been the subject of various recommendations by other APEC fora and in the AEPRs.

3.2.2 Research, workshops, dialogue, and collaboration The EC has undertaken an extensive amount of work to progress the RAASR. In summary this includes the following actions. More detail about the EC’s activities is provided in Appendix 2. Worked with the APEC PSU on the development of 20 quantitative (external) indicators, and

progress of individual economies in implementing structural reforms. Progressed work to address the gaps and priorities in the structural reform agenda informally

identified by the High‐Level Structural Reform Officials’ Meeting in 2018. Prepared four Annual Economic Policy Reports (AEPRs) covering structural reform for digital

economy, infrastructure, human capital development and services, enabling economies to share lessons and recommending actions for economies to pursue.

Participated in a range of policy dialogues to facilitate collaboration across APEC fora and support the implementation of recommendations in the AEPRs. This included collaboration with Human Resources Development Working Group (HRDWG), and the creation of an Informal Roadmap Group (IRG) consisting of 12 economies to guide the EC’s work to support the APEC Internet and Digital Economy Roadmap (AIDER).

Sponsored various projects in conjunction with the Corporate Law and Governance, Ease of Doing Business, Public Sector Governance, Regulatory Reform, Strengthening Economic Legal Infrastructure, and Competition Policy and Law Groups to increase and share knowledge.

3.3 Key lessons for the 2021-25 agenda from 2016-20 actions The discussion here is a summary of the key lessons from the implementation of the RAASR in 2016-20 and what those lessons mean for the 2021-25 agenda, but particularly the capacity of the future agenda to assist the COVID-19 economic recovery. More detailed information on the implementation of the RAASR in 2016-20 is provided in Appendix 3. The purpose of this section is simply to draw some common themes from the implementation of the 2016-20 RAASR relevant to the development of a future agenda and provide some examples of economy actions representing those themes.

3.3.1 Overview Analysis by the consultants suggests that the pillars and actions have enabled economies to undertake a range of significant reforms over the last four years to promote inclusion and leverage sustainable growth and high labour productivity. This includes for example: Pursuing the core actions to improve the competitiveness of economies, increase support for

entrepreneurialism, widen consumer and MSME access to finance, alleviate regulatory burdens on trade exposed businesses, and improve the consistency and transparency of rules and rule-making governing economic activity (Pillar 1).

Undertaking market deepening reforms to improve inclusion by addressing barriers to women’s economic equality and workforce participation, building MSME capacity for trade participation, and investing in vocational education and training to support human capital development and improve productivity and competitiveness (Pillar 2).

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Implementing holistic policy approaches to promote the inclusiveness and sustainability of growth. Holistic approaches have been those where inclusion objectives are considered and designed into structural reform up front, rather than as an afterthought or adopting a ‘wait and see approach’. Reforms have included equalising the employment conditions of formal and informal sectors, extending social safety nets like unemployment insurance, and prioritising support for sustained technological innovation within business. Many of the actions by economies are not ‘social policy’ in nature but rather focussed on building economic resilience so that their societies and workforces have the capacity to adapt and innovate to meet economic challenges and opportunities. In essence these economic policy actions are providing a social insurance (Pillar 3).

It is clear that these pillars and actions have contributed to promoting equitable and sustainable growth as well as economic resilience and represent a solid basis from which to pursue structural reform. However, the impacts of the COVID-19 pandemic are likely to mean that the pillars and actions in the 2021-25 agenda may need to be renewed, refined, and tailored to respond to specific COVID-19 effects in the short, medium, and long term. Economy insights on the potential short and medium term impacts of the COVID-19 pandemic they were experiencing or anticipating seem to suggest that this will be necessary. For example, during consultations on this paper, some economies suggested: The pandemic has exacerbated pre-existing income inequality, and this may deepen

intergenerational wealth inequality and further entrench intergenerational disadvantage amongst vulnerable groups in particular. The World Bank suggests these groups include households with limited income, savings, and access to insurance; women in low income, part time and casual work; the self-employed, and regional populations18. Inter-generational inequality is a risk to sustainable economic growth without special attention being given to an inclusive COVID-19 recovery and improvements to the use of social safety nets to address COVID-19 impacts.

The pandemic is accelerating the rise of digital economy and facilitating digital transformation and future policy efforts need to support digital economy development.

While medium-term growth targets are hard to predict at the moment, longer-term policy settings

will need to focus on public emergency preparedness, as well as improving productivity, particularly in response to fiscal pressures constraining public spending and debt transparency.

The pandemic has disrupted global supply chains and given some momentum to the regionalisation

and localisation of supply. This poses a risk to globalisation and economies need to be mindful of this when designing pandemic responses.

3.3.2 Reforms to achieve RAASR pillar 1 Pillar 1 seeks “more open, well- functioning, transparent and competitive markets”. The core structural reforms designed to achieve this pillar have been generally pursued by economies to achieve one or more of the following broad outcomes. Make markets more competitive, fair, and efficient to open markets, lower barriers to entry, enable

businesses to seize market opportunities and help raise productivity by boosting the speed at which new sectors and businesses grow.

18 World Bank, Poverty and Distributional Impacts of COVID‐19: Potential Channels of Impact and Mitigating Policies, 16 April 2020

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Set minimum standards of market behaviour to provide reliability and certainty for all participants, including investors, business, and employees.

Facilitate investment and business activity and ensuring the efficiency of supply chains by reducing

regulatory burdens and improving the reliability and transparency of regulation. Future proof inter-generational economic welfare and security by promoting skills development,

education and training and stimulating research and development for innovation. The table below summaries some common ways in which core reforms have been used in 2016-20. Table 2: Pillar 1 - Summary of some common core reforms undertaken in 2016-2019

Core reforms Common actions by economies Competition policy Review and improve competition law and policy regimes to meet

international best practice and provide investor confidence Tax system reform to improve the reliability and integrity Legislative improvements to financial services resilience and

reliability to expand access to services for investors, consumers, and business

Support for innovation and entrepreneurialism through regulatory roadmaps, regulatory reform to promote innovation and programs facilitating collaboration

Regulatory reform Standardising the use of regulatory impact assessments Building public sector capacity to conduct regulatory impact

assessments Using digital platforms to facilitate public consultation on regulatory

proposals Conducting stocktakes of regulation to reduce red tape Setting goals for regulation based on APEC benchmarks

Ease of doing business

Tariff elimination Free trade agreements Increased protection for intellectual property, shareholder rights and

contractual rights Reform or permit and licensing systems

Economic and legal infrastructure

Infrastructure spending to promote clean growth and employment creation and increase equitable access to communication networks, transit systems and affordable housing

Using competition policy to promote consumer welfare, innovation, investment, and efficient allocation and management of assets in digital infrastructure

Legislative reform to increase public scrutiny of government investments

19 Aegis Consulting Group analysis based on nine economy RAASR final reports provided to them in May before the PSU final RAASR review was available. As agreed with the RAASR Action Team during the scoping of this paper, the consultants have not been required to review all economy RAASR reports as that is the task of the PSU’s final RAASR review. The timeframe for the delivery of this paper has not permitted any further review of other economy reports.

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3.3.3 Reforms to achieve RAASR pillar 2 Background Pillar 2 seeks “deeper participation in labour, services and product markets by all segments of society, including MSMEs, women, youth, older workers, and people with disabilities”. It is important to note that periods of slower GDP growth, like the COVID-19 pandemic, can make it more difficult to extend opportunities for economic inclusion to those disadvantaged or marginalised groups that may not have benefited as much as others from economic growth. This includes women, populations in regional and remote areas, people with disability, Indigenous people and MSMEs. In periods of slower GDP growth, the pre-existing barriers to the economic inclusion of disadvantaged groups within populations can be exacerbated because: The competition for scarcer resources within economies, such as employment, and demand for

opportunities like education and training, is elevated and likely to favour groups with existing access and other advantages.

The supply of labour may exceed demand, and this can drive down wages to the greater disadvantage of poorer more excluded groups.

Employment, business, and other subsidies offered by governments are likely to be directed at

workers who become unemployed as a result of economic downturns rather than those who were not previously employed.

There is less financial capacity within economies for public and private spending on formal

child-care and other benefits designed to promote the workforce participation of women, people with disability and others. Although it should be recognised that informal child-care arrangements are quite prevalent in many APEC economies.

Public and private investment may be targeted to leverage the economic scale and scope offered by

the agglomeration of activities urban areas, thereby increasing the disadvantage of regional and remote populations.

Business participation in goods and services trade and global supply chain arrangements may favour

incumbents and create additional barriers to entry for new MSMEs or newly unemployed people wishing to become self-employed through sole trading or other mechanisms. These barriers to entry may be more acute where slower GDP growth is accompanied by less availability to credit for unproven new MSMEs.

Women may face added discrimination if employers consider their actual or potential maternity a

risk to workplace productivity. One way to ameliorate the risks of these barriers becoming more acute in periods of slower growth, is to undertake the core structural reforms during periods of higher growth. This can help to reduce the economic shock for groups needing the most help. RAASR reporting and the discussion in the previous suggests that many economies have been doing this. However additional pro-inclusion reforms targeting population cohorts may be required to achieve Pillar 2, particularly where more targeted initiatives are needed to address inter-generational or structural disadvantages faced by some groups. Based on RAASR 2016-20 reporting available to the consultants, it appears that economies have mostly pursued a range of pro-inclusion reforms targeting women, MSMEs and youth, but there appears to be

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minimal focus on older workers, people with disabilities and regional populations. There is also little specific attention given to informal workers and the disadvantages they may face. The table below summarises some common pro-inclusion market deepening reforms undertaken in 2016-20. Table 3: Pillar 2 - Summary of some market deepening reforms undertaken in 2016-2020

Pro-inclusion market deepening reforms

Some actions by economies

Women The use of employment targets and quotas for private sector and government corporation Boards and government agencies (a target of 30 percent is commonly used)

Subsidised childcare provision to promote work-life balance and encourage women into the workforce extending including via child-rearing subsidies, expanding public childcare and preschools, subsidising private childcare and preschool, and encouraging employers to establish childcare arrangements for employees

Promoting women’s economic contribution through affirmative action policies in recruitment; diversifying vocational training programs; targeting high value industries for increased female participation and extending paternity and maternity leave to SMEs

Enabling women entrepreneurs through digital networking platforms showcasing talent

Youth Subsidised work-integrated learning opportunities and job placements Expanding the eligibility for student loans and reducing loan repayment

requirements to make debt more manageable Education subsidies for students from low and middle-income families and

for part-time students MSMEs Improving government structures to support MSMEs including by

centralising MSME policy making and focussing policy effort on issues essential for MSME growth such as human capital development, access to financing, market access, innovation and technology adoption, and lower regulatory burden

Encouraging finance for MSMEs including by widening the sources of credit history MSMEs can use to obtain funding and enabling borrowers to provide alternative collaterals for finance

MSME capacity building and knowledge sharing including through joint economy digital collaboration and assistance with regulatory and legal issues and approvals


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3.3.4 Reforms to achieve RAASR pillar 3 Pillar 3 seeks “sustainable social policies that promote the other outcomes, enhance economic resilience and are well-targeted, effective, and non-discriminatory”. Many of the actions which economies report they are taking under Pillar 3 can also be considered to be actions relevant to delivering the objectives of Pillars 1 and 2. In general activities under Pillar 3 appear to be more holistic and focussed on investments for the long term. Actions reported economies under Pillar 3 are not all traditionally ‘social policy’ in nature as may be envisaged by Pillar 3. Some economies report actions under Pillar 3 which are designed to holistically build their overall economic resilience. These include for example actions to integrate, embed, or enhance science and technology or export promotion in the operations, incentives, and priorities of their economies. This is undertaken with a clear view that innovation and trade can build economic resilience and that economic resilience is a key social policy. This reflects a view that the best form of welfare is a job. The table below summarises some common reforms undertaken in 2016-20 to promote economic and social sustainability. Table 4: Pillar 3 - Summary of some social policy reforms undertaken in 2016-2021

Sustainable social policies

Some actions by economies

Building capacity for technological innovation

Increasing investment in the depth, integrity, governance, management, commercialisation, technological innovation and optimisation, transformative capacity, and intellectual protection of scientific research

Reforms to vocational education and training

Providing increased programs for wage/self-employed workers, industry workers, and workers needed in emerging technologies and newly established companies

Providing tailored programs for disadvantaged groups gain and/or increase their economic independence and contribution

Promotion of export services

Coordinating across the economy various activities and initiatives related to the global services sector, such as productive promotion, export, and investment promotion, training and certification, and culture and the arts

Using public-private coordination to develop a regulatory and information framework to support export services such as developing information and measurement tools to enable the creative industries participate in export activities


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3.4 Overview of recommended 2021-25 agenda

3.4.1 Framing the agenda To ensure that pillars and actions in the future agenda are properly responsive to the economic and social risks created by the COVID-19 pandemic, some economies suggest that the current pillars be adjusted to reinforce the need for structural reform to promote equity. To achieve this, the new pillars could: Reinforce the need for economies to prioritise holistic approaches to reform so that any negative

consequences of change are avoided, mitigated or off-set by complementary social policies in the design stage. This is consistent with the ‘integrated approach’ in the EC’s 2018 policy framework.

Include a specific focus on COVID-19 economic recovery strategy with an emphasis on collaborating to build resilience against future shocks. This could include identifying vulnerabilities to future economic shocks, and methods to make sustainable investments, improve the application of social safety nets, and increase access to education. In this context the future agenda should reflect the need for sustainable policies to have environmental, economic, and social dimensions in the COVID recovery context.

Prioritise inclusivity in COVID-19 recovery policy making, including evaluating well-being as a potential outcome of reform.

Include a specific focus on structural reform and international cooperation to improve public health capacity and services. This is because COVID-19 has exposed the importance of public health to inclusive and sustainable growth as well as labour productivity.

Recognise that digitalisation will have a significant impact on labour productivity and sustainable

growth and that structural reform supporting digital capacity needs to minimise risks and maximise opportunities. For example while digitalisation may shift many jobs and economic activities on-line, the COVID-19 pandemic has demonstrated that economic and labour market impacts can be felt disproportionately by groups who are less digitalised, such as low income workers and regional populations. Accordingly, addressing poverty in digital age will be critical to inclusive growth.

Reinforce the need for structural reform to support vulnerable segments of society such as MSMEs, youth, older workers, women, people with disability and Indigenous people.

Emphasise the need for global cooperation to enhance the resilience and reliability of global supply chains and maintain open and competitive markets.

3.4.2 Implementing the agenda Increased guidance for economies Guidance provided by the EC’s 2018 policy framework which offers three approaches to the design and implementation of structural reform remain relevant. Some view that the ‘integrated approach’ in the policy framework offers an optimal pathway to shape holistic reform in response to the challenges posed by COVID-19. This ‘integrated approach’ suggests developing holistic policies which can combine the core structural reform actions, pro-inclusion market deepening reforms and other broader policies and programs to promote social inclusion and equity. Analysis by the consultants indicates that to promote equity as a common theme underpinning inclusive and sustainable growth and labour productivity the structural reform agenda could be more tangibly

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linked to the APEC Action Agenda on Advancing Economic, Financial, and Social inclusion (the AAEFSI). Doing so would support implementation of the ‘integrated approach’ and be consistent with the recommendations of the APEC Vision 2040 Group. One way to achieve this is to include the AEEFSI indicators in the reporting by economies on structural reform and give economies an opportunity to respond to these indicators. Given the challenges to structural reform created by COVID-19 and the importance of effective recovery policies, the consultants also observe that additional guidance could be developed for economies on the use of evidence to design and continuously evaluate reform, measures to support MSMEs for the purposes of boosting productivity and best practice human capital development and labour market reforms. Wider collaboration and knowledge sharing Economies consider that collaboration and knowledge sharing will be particularly important to implementing effective COVID-19 recovery strategies. Collaboration will be especially helpful to overcome barriers to structural reform. Some identified barriers and measures to address them suggested by economies include: There is the heightened potential for trade protectionism as international supply chains break down.

To assist address this the EC should stress the importance of strengthening the connectivity between the Friends of the Chair (FotC) Groups and the Competition Policy and Law Group (CPLG).

The economic reality of increasing business bankruptcies and high unemployment in combination with lower fiscal headroom available to support economic output is a significant barrier to the 2021-25 agenda. At the same time, the disruption may create new economic opportunities and higher community support for reform. It would be useful for the EC to facilitate knowledge sharing by economies on recovery strategies. This could include for example, best practices in prioritising government resource allocation in constrained fiscal environments and a compilation of best practices for the assessment and evaluation of structural reform policies and actions.

Deeper evaluation The consultants observe that the future agenda could benefit from additional evaluation tools to facilitate comparison of economy actions. Widening the scope for comparison is likely to be necessary to assist further collaboration and knowledge sharing between economies in their effort to design and implement effective COVID-19 recovery strategies. It is suggested that evaluation could be enhanced by encouraging economies to report on how their reforms: Align with the six core structural reforms. Promote inclusive growth and/or mitigate the negative impacts on inclusive growth of COVID-19. Align with the indicators in the AAEFSI.

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3.5 Policy recommendations

Recommendation 1 – pillars and actions To enhance the capacity of the current three RAASR pillars and six core actions to deliver the RAASR objectives in the context of the COVID-19 pandemic, the EC could consider amending the pillars and actions to reinforce the importance of economies: Implementing all three pillars in a holistic way. This is consistent with the ‘integrated approach’

recommended in the 2018 EC policy framework for structural reform. This approach increases the opportunity for economic and market reforms to also support inclusion and equity.

Embedding inclusion goals up front in the design of the six core structural reforms in addition to pro-inclusion market deepening reforms.

Using structural reform, such as reducing regulatory burdens and increasing regulatory harmonisation, to increase the overall resilience of economies and supply chains.

Applying structural reform to expand access to markets, services, products, and infrastructure amongst urban and regional populations and demographic groups in order to promote labour productivity and support sustainable growth.

Rationale The reporting by economies on RAASR delivery and views expressed by economies during the consultation on this paper indicates there is a strong support for the existing pillars and core structural reform actions. The PSU’s final RAASR review recommends that the pillars and actions be continued in 2021-25. The lessons from the implementation of the 2016-20 RAASR discussed earlier in this paper suggest that the pillars and actions to progress them make a solid contribution to inclusive and sustainable growth by promoting access to services, products, and labour. Efforts to expand training and workforce participation for women, youth, MSMEs and other disadvantaged groups are particularly important to extend equity, and in doing so assist to improve and maintain labour productivity. The international evidence affirms that COVID-19 will have an adverse impact on economic growth for some time and that groups that are especially vulnerable to economic shocks will bear the larger brunt of this downturn. These groups include employees who cannot do their jobs from home like those in the hospitality, tourism, construction, cleaning, and care giving sectors. These workers are forced to expose themselves to higher risks of infection where they are still required to attend their worksites22. Many workers in these sectors are low paid, lack the protection of formal working conditions such as sick leave and health insurance, and have few savings, limited pensions, and minimal personal insurances. Women, youth, the self-employed, regional populations, Indigenous populations, and people with disability often dominate informal, low paid work. Their existing pre-COVID-19 situations means the pandemic may exacerbate their risks of experiencing poverty. Disruptions to schooling of children worldwide may have more acute impacts on these low income families and increase the risks that their children will suffer inter-generational disadvantage. The IMF estimates that about ‘70 percent of children worldwide have experienced disruptions to their schooling and that this will result in significant loss of learning, with disproportionately negative effects on earnings prospects for children in low-income countries’23.

22 See section 2 23 IMF, World Economic Outlook, June 2020, p8

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The COVID-19 pandemic is also putting added pressure on the resilience of global supply chains, as lockdowns disrupt normal trade flows and economies seek to expand domestic production. These circumstances are likely to have negative impacts on labour productivity as companies have to adjust their operations to survive, but with furloughed, stood down or unavailable workforces. Even in a recovery phase the IMF suggests that ‘global supply chain reconfigurations will affect productivity as companies try to enhance their resilience to supply disruptions’24. In this scenario MSMEs are likely to be most vulnerable to changes to labour productivity and less able to maintain resilience against supply chain changes. This is because MSMEs are likely to have less bargaining power in markets and supply chains and may be less able to easily and cost effectively leverage technology to support their business systems. These challenges suggest that the 2021-25 agenda should seek to reinforce the use of the ‘integrated approach’ in the EC’s policy framework to progress all three pillars in a holistic way. Ways to achieve this can include: Designing structural reform with short, medium, and long term inclusion and equity goals up front

so that these goals guide the implementation and future evaluation of reform. Developing reform packages which combine relevant core reforms, market-deepening reforms, and

social policies to secure the sustainability of growth, particularly for vulnerable groups needing extra protection form the effects of the COVID-19 pandemic.

Focussing structural reform on three key aims in response to the COVID-19 pandemic (1) improving equity; (2) improving the resilience of supply chains and (3) expanding access to services, product, and labour markets.

Taking this approach is consistent with responding to the concerns of the independent APEC Vision 2040 Group about inequality pre-COVID-19 and its proposed solutions to address inequality. The APEC Vision 2040 Group was commissioned by APEC Ministers to consider the future direction of APEC25. In its report to Leaders it expressed concern that “while the region has generated ample growth over recent decades, prosperity has not necessarily been shared broadly. Widening inequality threatens to undermine future growth and the political consensus in support of open markets. Moving beyond 2020, attention needs to be focussed on advancing economic, financial, and social inclusion and the participation of underrepresented people in all segments of society”26. The Group developed recommendations in response to its concerns and in consultation with the ABAC27, PECC28and PSU. Their recommendations have not been agreed to by APEC at the time of this report. However, two recommendations are particularly relevant to EC’s consideration of the pillars and actions in the future agenda. These are29. Recommendation 3 - APEC should prioritise inclusion and economic empowerment as key

elements, and as additional drivers, of growth and shared prosperity. Recommendation 6 - APEC should advance robust and comprehensive structural reform and

cooperation for good economic governance as critical drivers of growth, inclusion, and innovation.

24 Ibid,p5 25 The APEC Vision Group consisting of representatives from APEC economies. 26 People and Prosperity: An APEC vision to 2040, Report of the APEC Vision Group, December 2019 27 Letter of 24 August 2019 28 A Vision for APEC 2040, Report of the PECC Taskforce on APEC beyond 2020 29 People and Prosperity: An APEC vision to 2040, Report of the APEC Vision Group, December 2019

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The reinforced use of structural reform to promote inclusion, equity and supply chains is also strongly supported by PECC. It suggests that to ensure that the benefits of economic growth flow through to all sections of society an ongoing structural reform agenda should: Increase an emphasis on the removal of barriers to participation in the economy by women, youth,

MSMEs, indigenous communities, the disabled, and communities in rural and remote areas. Incorporate an inclusiveness dimension in APEC work programmes and agendas on policy areas of

central importance to achieving full economic participation by all sections of society. Identify and agree a suitable range of indicators of inclusiveness, which taken together can provide

a useful portrayal of progress in this important area and can be reported as such on an annual basis for all APEC economies30.

The PECC suggests that fundamental norms that have historically underpinned liberalisation efforts are no longer sufficient by themselves to drive growth and trade forward and therefore future momentum will be critically dependent on meaningful structural reform in APEC economies. Of these reforms it considers that “a strong commitment to deeper regulatory reform cooperation will be central to improving connectivity and infrastructure, and to unlocking significant growth potential in APEC services markets and through the use of digital technologies”31. The ABAC also suggests that the economic empowerment of all community members must be a basic operating principle guiding structural reform, because MSMEs, and women, still struggle to find success in business and trade32.

Recommendation 2 – EC policy framework To enable structural reform to respond to the adverse economic and social impacts of the COVID-19 pandemic the EC should consider updating its 2018 policy framework to expressly encourage economies to: Recognise that embedding inclusion goals as a must have in structural reform design is consistent

with the international best practice. Use a comprehensive approach to structural reform where policy packages are designed with

inclusion goals up front to mitigate trade-offs. Use policy, regulatory and funding tools to better able and assist the private sector in economies to

commit to and deliver inclusion goals because this is also consistent with international best practice. Recognise the importance of taking inclusive recovery from the COVID-19 crisis into consideration

in structural reform design. Rationale To support the purpose of recommendation 1 the EC should consider ensuring that its policy framework reflects international best practice about inclusion goals relevant to the APEC region. To assess possible options to embed inclusion goals as a central aim of structural reform, the consultants have reviewed the policy prescriptions for economic inclusion suggested by other international organisations including the ILO, World Bank, IMF, OECD and EBRD.

30 A Vision for APEC 2040, Report of the PECC Taskforce on APEC beyond 2020 31 Ibid 32 APEC Business Advisory Council, submission to the APEC Vision Group, August 2019

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Of these the OECD and EBRD are most instructive in relation to approaches to achieving economic inclusion which extend beyond that already adopted by APEC. Accordingly, these have been chosen for further discussion because: The OECD is a leading source of economic intelligence and has a well-established leading

commitment to embed economic inclusion objectives in international frameworks for economic policy making across advanced and emerging economies.

The EBRD is focussed on supporting the transactions needed for economic reform in emerging Eastern European economies which often need to build the capacities for structural reform in markets from first principles. Many of these economies share similar characteristics to emerging economies within APEC. As part of its support for economic reform the EBRD is strongly focussed on encouraging structural reforms at firm level which enable economic inclusion.

The OECD The OECD has developed a framework to guide the design and implementation of economy responses to achieve inclusive growth. The framework is founded on a premise that governments should front end economic policy design with inclusion goals thereby embedding a focus at the beginning of policy implementation. This approach assumes that inclusion is a must have. This is different to macro and micro methods in which inclusion is a welcome by product of economic policy and can be improved by social policy responses where market activity fails to deliver it. In this traditional approach economic inclusion is a nice to have. The underlying basis for the OECD framework is captured by Gabriella Ramos, OECD Chief of Staff and Sherpa to the G20. She says “inclusive growth means not only that the benefits of economic growth are widely shared, but that the growth process itself is built with the participation of all, particularly low income groups and laggard firms. We need a growth model that introduces equity considerations ex ante and that puts people at the heart of policymaking”.33 The OECD framework consists of integrated methods to achieve three inter-related objectives: Invest in people and places which are left behind. These are actions to (1) reverse inter-

generational disadvantage caused by unequal access to early education, health services or the labour market; and (2) promote social mobility.

Support business dynamism and inclusive labour markets. These are joint actions by governments and business (workers, firms and entrepreneurs) to reduce gaps in the productivity of firms and related income inequality.

Promote efficient and responsive government. These are actions to foster wide stakeholder ownership of policies to promote inclusion.

The specific methods proposed by the OECD to deliver these objectives remain largely a mix of economy level actions representing widely accepted macro and micro policy approaches. In this sense they are similar to the recommendations to APEC from the work undertaken by the EC and other fora. However, the OECD methods seem to include more implicit or explicit assumptions that the delivery of methods will rely on extensive partnerships between governments, business and other stakeholders. A more detailed illustration of the proposed OECD actions is provided in Appendix 4. An example of embedding inclusion goals up front in policy design is provided in Case Study 1. It illustrates Canada’s use of gender budgeting to drive inclusion outcomes in a whole of government way.

33 OCED, Opportunities for all: OECD Framework for policy action for inclusive growth, Policy Brief May 2018

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The EBRD The role of the EBRD means that it can have a direct influence at firm level to pursue economy wide impacts. This is different to the policy prescriptions of the OECD and APEC which are chiefley designed to shape economy level change. The EBRD does this by providing funding for business and projects to assist economies transition to achieve six qualities which it considers are necessary for sustainable market economies. These qualities are competitive, well-governed, green, inclusive, resilient, and integrated 34. The EBRD’s uses its Economic Inclusion Strategy (EIS) to help economies transition towards the desired six qualities. The EIS is integrated with the bank’s Strategy for the Promotion of Gender Equality and Environmental and Social Policy For Sustainable Impact. The rationale of the EIS is that promoting an inclusive market-based system is dependent on efficient human resource allocation.35 Given this, the EIS focusses on the transactional methods needed to achieve equal, fair and full access for all population groups to labour markets, finance and economic opportunity at the two levels where resource allocation occurs:36 Firm level – where the EBRD uses its impact to pursue standards of conduct and decision making

that recognise (and indeed exploit) the full potential of different individuals, clients and suppliers. Economy level – where the EBRD requires that legal frameworks, institutions and policies are free

from biases and actively seek to reduce barriers to participation in the economy. The transactional issues which the EBRD considers support its objectives and which offer comparative lessons for the EC are as follows. The EBRD considers that the three key areas underpinning the delivery of economic inclusion are

access to skills and employment; entrepreneurship and access to finance; and access to services that enhance economic opportunities. The APEC AAEFSI and the numerous recommendations of the EC and other APEC fora also recognise the critical nature of these enablers. However the EBRD has a specific commitment to use its resources to expand the scale and scope of these inclusion enablers to a wider range of sectors and geographic regions. This may be something that the EC could consider as part of the 2021-25 structural reform agenda.

EBRD distinguishes between a core set of population groups that may need improved enablers for inclusion (women, youth and regions) and other groups who also need increasing attention because they experience disproportionate barriers (ageing workforce, people with disabilities, refugees, migrant workers, informal workers, Indigenous people). The AAEFSI and numerous recommendations of the EC and other APEC fora identify these similar groups for attention.

The EBRD assesses the systemic inclusion impact in relation to specific target groups in order to

enhance the development of inclusion projects and policy activities that directly address the specific inclusion barriers that these groups face. The EBRD uses this an as alternative to analysing inclusion issues at economy level. By doing so the EBRD‘s solutions and investments have greater potential to resolve exclusion issues. The EC may consider developing systemic inclusion impact assessment guidelines for economies to use when designing structural reforms.

34 European Bank of Reconstruction and Development, Economic Inclusion Strategy, 2017‐2021 35 Ibid 36 ibid

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Recommendation 3 – policy areas for priority attention Consistent with taking a holistic approach to structural reform, including responding to the impact of COVID-19 on equity and inclusion the EC should consider prioritising the following policy areas for attention, research, and collaboration by economies: The capacity of regulatory tools including competition policy to be used to promote broader

economic welfare and inclusion outcomes, beyond consumer welfare. The further integration of regional populations in services, product, and infrastructure markets. The further promotion of digitalisation in public and private sector. Rationale Competition law and policy is a proven tool to increase consumer welfare. In some economies, such as New Zealand, competition law enables consideration of the broader public interest when assessing market behaviour. As part of COVID-19 economic recovery it may be necessary for competition law and policy to embrace a wider public benefit test to ensure that market rules and the enforcement of those rules is able to properly consider impacts on economic equity and inclusion, sustainable growth and labour productivity. This may be particularly important for the appropriate regulation of market responses to public and private investment in activities which are viewed as integral to economic recovery such as the: Application and expansion of digital technology and platforms to widen access to services,

products, and labour. Increased reliance on scientific and technological research and development to drive innovation for

production. Increased reliance on medical research and technology to accelerate health responses needed to

support a return to normal economic activity. Expansion of accelerated education and training to support human capital development and

productivity. Reconfigurations of business and trading relationships to support supply chain resilience. Extending the lens of competition policy and law to include consideration of economic inclusiveness may be especially important to avoid the potentially long term distorting effects of urgent responses to recover from COVID-19. The geographic isolation of regional populations and businesses has always been a challenge for inclusive economic development. As has been discussed in the EC’s 2016-20 AEPRs extending information and communications technology, transport, energy, water, and other critical infrastructure to regional areas is necessary enable their participation in services, products, and labour markets. The COVID-19 pandemic has also highlighted the disparities in health infrastructure between urban and regional areas and the risks this poses to population health and economic recovery. As economies consider the investments and policy responses needed to support economic recovery, there is a good opportunity to accelerate the integration of regional areas in economic planning.

Recommendation 4 – measurement of inclusion outcomes In order to better enable economies to understand and respond to the economic and non-economic impacts of COVID-19, and to achieve inclusive recovery from the damage, the EC should consider taking a lead on the exploration of alternative methods to evaluate inclusive growth, to complement the use of GDP to measure economic growth. This could include a comparative analysis of broader approaches to well-being measurement adopted by some economies.

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Rationale The COVID-19 pandemic will create economic and social dislocation. During the economic recovery stage, it will be important for economies to also consider the broader social risks of the pandemic affecting the physical, mental, and societal wellbeing of communities. This is important because the wellbeing of individual people and the communities in which they live can affect their motivation and capacity to work (labour productivity), the extent to which they rely on social safety nets to boost their intergenerational prospects (inclusion), and their desire to be participate in the positive aspirations of society in general (sustainable growth)37. To better assist the capacity of structural reform to include and respond to well-being priorities, the EC may need to explore alternatives methods to measure economic growth in order to complement the traditional use of Gross Domestic Product (GDP). The PSU has previously explored various alternatives to GDP as a measurement of growth and this is a good starting point to examine options which enable APEC to measure things that GDP cannot, such as well-being, the impacts of technology and activities for which data is not collected in traditional ways38. The EC has an opportunity to lead this discussion further within APEC. The OECD’s wellbeing framework39is one available tool that seeks to capture and understand data beyond GDP. The framework’s key purpose is that it: Measures well-being where people experience it. It focuses both on individuals and on place-based

characteristics, as the interaction between the two shapes people’s overall well-being. It concentrates on well-being outcomes that provide direct information on people’s lives rather than

on inputs or outputs. It is multi-dimensional and includes both material and non-material dimensions. It assesses well-being outcomes not only through averages but also by how they are distributed

across regions and groups of people. It is influenced by citizenship, governance, and institutions. It takes account of complementarities and trade-offs among the different well-being dimensions. It looks at the dynamics of well-being over time, at its sustainability and at the resilience of different

regions. Under the framework the comparative well-being score for regions is assessed using eleven topics – income, jobs, housing, health, access to services, environment, education, safety, civic engagement and governance, community, and life satisfaction40. New Zealand has recognised that the broad range of factors which matter to its population and distributional and intergenerational impacts are central to any definition of progress and the purpose of policy decision making. Two key responses to put this recognition into practice have been: The Treasury’s development of the Living Standards Framework (LSF)41 as a tool to support

policymakers to reflect broader factors more consistently – as well as distributional and sustainability impacts – in their advice. The purpose of the LSF is to ensure that social and

37 European Bank of Reconstruction and Development, Economic Inclusion Strategy, 2017‐2021 and Aegis Consulting Group analysis 38 PSU, APEC regional trends analysis, counting what counts, November 2019 39 https://www.oecdregionalwellbeing.org/assets/downloads/Regional‐Well‐Being‐User‐Guide.pdf 40 Ibid 41 https://treasury.govt.nz/information‐and‐services/nz‐economy/higher‐living‐standards/our‐living‐standards‐framework

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environmental impacts are as systematically quantified and assessed as economic and fiscal impacts.

The New Zealand Government is drawing on the Living Standards Framework to support it in embedding the Wellbeing Approach in its budgeting, and in policy development across the public sector. The principles underlying the Wellbeing Approach are: making decisions and tracking progress using broader measures of success, beyond just GDP; breaking down agency silos and working across government; and consideration and prioritisation of long-term and intergenerational outcomes.

More information about the New Zealand approach is provided in Case Study 2. These approaches to measuring well-being have developed because while GDP remains an important proxy to calculate economic growth, it calculations cannot fully capture all the economic and social factors making a difference to people’s lives. For example GDP does not measure the42: Benefits of increasing health and wellbeing of the population. This means, for example, that the

increase in life expectancy as countries get wealthier is not reflected in GDP calculations. Changes in the environment and the rate of resource depletion. This refers to both negative and

positive effects. The United Nations have established a framework known as the “System of Environmental Economic Accounting” to try and fill this gap.43

Fact that leisure time has massively increased for average workers over the decades. As a generalisation they do not work anywhere near the hours of their grandparents. Many also do not start work until they are much older due to education and they also retire at younger ages. All these factors that have contributed to people’s well-being are not measured by GDP.

Economic contribution made by the voluntary and in-kind services people offer to support community groups in sporting, environmental, community care and other sectors.

Increased quality of life due to lower crime rates, greater community facilities and open spaces. Negative effects of extreme income inequality.

Thus, GDP underestimates the standard of living in lower income countries. One study suggests that non-market income may account for over 45 per cent of total income and for the poorest households up to as much of 90 per cent of that segment of the population.44

3.6 Process recommendations

Recommendation 5 – RAASR reporting to enhance comparative evaluation To deepen the comparison of economy actions and knowledge sharing the EC should consider: Encouraging economies to report their actions against the six core structural reforms as a subset of

reporting against the three pillars where possible. This will enable a deeper and more consistent comparative assessment of how core structural reforms are used by economies to promote inclusion.

42 Aegis Consulting group analysis and PSU, APEC regional trends analysis, counting what counts, November 2019 43 Australian Bureau of Statistics (2013), Towards the Australian environmental economic accounts, Information Paper, 2013 44 Kunta Nugraha and Phil Lewis (2013), Towards a better measure of income inequality in Indonesia, Bulletin of Indonesian Economic Studies, Vol 49, Issue 1, pp 103‐112

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Encouraging economies to report specifically on how their reforms have been designed to promote inclusive growth and/or mitigate the negative impacts on inclusive growth of COVID-19, including any evidence of effects. This will enable the EC to better understand and compare the evidence on how reforms are specifically supporting the existing APEC Action Agenda on Advancing Economic, Financial, and Social inclusion (the AAEFSI) and the future direction of APEC which has been recommended by the APEC Vision 2040 Group.

Designing a reporting template which enables economies to report on how their reforms align with

the indicators in the AAEFSI. This will support the gathering of evidence of how structural reform can deliver the inclusion outcomes which APEC is using to assess its overall performance.

Rationale The urgency and critical nature of dealing with the economic impacts of COVID-19 will increase the importance of making future comparative assessments of economy actions and responses easier and more consistent. There are three ways to enhance this. Future comparative assessments would benefit from giving economies the opportunity to report

against the core structural in addition to reporting against the three pillars. If the focus of reporting became about the means of achieving outcomes (the reforms themselves) rather than the objectives (the Pillars) then this may assist economies explain in more detail the nature and impacts of reforms. This is likely to offer richer information for comparative and knowledge sharing purposes.

To enable comparison of economy efforts to deliver inclusive growth and address the effects of

COVID-19 on inclusion and equity, future reporting should encourage economies to include evidence of actual inclusion targets and the achievement of those goals for core and market deepening reforms. This is consistent with earlier policy recommendations that inclusion goals be embedded in the design of reform.

For future reporting and evidence gathering purposes it would be useful for economies to report on how their structural reform agendas are actually delivering APEC agreed inclusion outcomes. These indicators already exist in the AAEFSI, and therefore it may be helpful for a 2021-25 agenda reporting template to give economies the opportunity to report on how their structural reforms deliver these indicators. The EC policy framework for inclusion already supports the AAEFSI and therefore the AAEFSI indicators can be easily adapted into a new reporting template for the 2021-25 agenda to improve future assessments of inclusion outcomes. Use of AAEFSI indicators may also help to maintain the impact of the EC policy framework.

The alignment of the EC policy framework and AAEFSI indicators is provided in Appendix 5. The use of these indicators more definitively in reporting on structural reform would support delivery of the following recommendations by the APEC Vision Group about future initiatives to promote inclusiveness45: APEC should prepare for leaders a comprehensive review of research across APEC economies to

identify trends, issues, and policy options in relation to inclusion and narrowing inequality. Economies should develop individual action plans drawing on these options and addressing specific priorities of their choosing, which can, as appropriate, be supported by cooperative initiatives.

45 People and Prosperity: An APEC vision to 2040, Report of the APEC Vision Group, December 2019

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APEC should regularly review the implementation of the AAEFSI, with attention to measuring progress for all underrepresented groups and individuals, including people with disabilities, people in poverty, those in remote areas and indigenous peoples.

Incorporating these indicators in future reporting on structural reform would also support the delivery of the recommendation by the PECC that “ identifying and agreeing a suitable range of indicators of inclusiveness, which taken together can provide a useful portrayal of progress in this important area, and can be reported as such on an annual basis for all APEC economies”46.

Recommendation 6 – guidelines for structural reform design To enhance the capacity of economies to consistently apply structural reform to build economic resilience and address inequity, the EC should consider developing guidelines for (a) gathering and assessing the evidentiary basis for structural reform before implementation and (b) continuously measuring the impact of reform including in relation to economic, financial, and social inclusion. Some key reform elements for which guidelines could be considered include: The conduct and management of cost/benefit assessments accompanying structural reform

proposals and the systemisation of those within policy making institutions and processes. The conduct of regulatory impact assessments and the systematic use of those to guide and obtain

stakeholder views on the impacts of rules on economic, financial, and social inclusion. The options and methods to manage public consultations on structural reform programs. The methods to embed program evaluation indicators in the design of structural reform so that data

relevant to the assessment of the impacts of reform can be continuously obtained and assessed during the implementation of reform.

The use of dashboards to monitor reform impacts, similar to the dashboard developed by APEC in relation to women’s economic and social inclusion.

Rationale Most structural reform actions involve some form of regulatory change. This is why some economies pursued improvements to their regulation making processes during 2016-20 with the aim of ensuring that reform impacts are well understood and assessed before rules are implemented. The economic and social impacts of COVID-19 will increase demand on economies to assess the pros and cons of reform via an evidence based process. Accordingly, there may be merit in the EC sponsoring the development of guidelines, policy dialogues and other initiatives to promote a consistent approach to assessing reform impacts and increase knowledge sharing between economies. The OECD’s 2012 Recommendation on Regulatory Policy and Governance47 is a good starting point. It encourages economies to ensure that reform reflects administrative and regulatory efficiency principles. Key recommendations of the OECD in relation to regulatory and administrative efficiency that governments should implement are described in the table below.

46 A Vision for APEC 2040, Report of the PECC Taskforce on APEC beyond 2020 47 http://www.oecd.org/governance/regulatory‐policy/2012‐recommendation.htm

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Table 5: Key regulatory and administrative efficiency principles recommended by the OECD OECD recommendations on regulatory policy and governance48 OECD recommended actions

to ensure administrative and regulatory efficiency49

1 Adhere to principles of open government, including transparency and participation in the regulatory process to ensure that regulation serves the public interest and is informed by the legitimate needs of those interested in and affected by regulation. This includes providing meaningful opportunities (including online) for the public to contribute to the process of preparing draft regulatory proposals and to the quality of the supporting analysis

Effective stakeholder consultation.

2 Integrate Regulatory Impact Assessment (RIA) into the early stages of the policy process for the formulation of new regulatory proposals

Acknowledge that domestic regulation can have wider market impacts in an increasingly globalised economy.

Avoid unnecessary trade restrictiveness

Ensure that regulation is fit for purpose in an era of rapid technological change.

Apply competition principles.

3 As appropriate apply risk assessment, risk management, and risk communication strategies to the design and implementation of regulations to ensure that regulation is targeted and effective. Regulators should assess how regulations will be given effect and should design responsive implementation and enforcement strategies

4 Where appropriate promote regulatory coherence through co-ordination mechanisms between the supranational, the national and sub-national levels of government

Use international standards as a basis for regulations.

Consider whether any equivalent foreign measures are in place. 5 In developing regulatory measures, consider all relevant international

standards and frameworks for co-operation in the same field and, where appropriate, their likely effects on parties outside the jurisdiction

To adapt these principles in an APEC context, the EC may consider developing guidelines to assist economies apply them. Within an APEC context, and in response to the challenges of COVID-19, there are some key aims that should underpin a reform and regulation making process to better promote inclusion and equity. These aims are as follows. Understanding what makes reform efficient. The OECD principles provide high-level guidance

here. But at a more micro level reform has an increased chance of promoting inclusion, productivity, and sustainable growth if economies/governments:50 Centralise the oversight of reform/regulation making. This can occur via the creation of an

independent or semi-independent body to set and monitor the quality of reform/regulations being made within government agencies. It can also be via government decision processes which ensure that reforms have met government objectives, such as via Cabinet scrutiny.

48 OECD 2012 Recommendation on Regulatory Policy and Governance; p5 49 Kleitz, Experience and best practices in achieving regulatory efficiency and open markets, OECD Trade Directorate, Paris 2001 50 OECD Regulatory Policy Outlook 2018 and Aegis Consulting Group knowledge and analysis of Australian and New Zealand regulatory practice

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Provide the tools to ensure that reforms/regulations consistently meet the quality standards expected by governments. This can be via the use of Regulatory Impact Assessment (RIA) which examines the costs and benefits of proposed reform/regulations in conjunction with stakeholders. Oversight of the appropriate and consistent use of RIAs can be undertaken by an independent body and/or via Cabinet decision making processes.

Incrementally apply the RIA process to build learnings and the capacity of government

administration to apply it effectively. For example, it may be sensible to start with subordinate legislation (less important regulation) as opposed to primary legislation.

Seek to design reform/regulation to respond to and/or nudge behaviour based on reliable data.

This can include using behavioural insights (BI) as a tool for gaining knowledge about the incentive’s governments can use to shape consumer and market responses. The BI tool can support RIAs because they enable regulatory learning, adaptation, and innovation. Thus, the BI tool can be useful to inform an RIA, periodic regulatory reviews (such as competition reviews), stakeholder engagement and the actions of institutions, regulators, and regulated entities.

Ensure reform/regulation making specifically considers inclusion goals. One method to ensure

that inclusion goals are appropriately considered in the design of regulation and policy is to require their specific analysis as part of RIAs and government decision making, such as Cabinet processes. For example, Cabinet decision of reform could require specific analysis of the impact on women, youth, MSMEs, the aged, regions and other groups who may face barriers to economic inclusion.

Design reform/regulation with reference to international issues. Regulation making should

seek to maximise international regulatory co-operation and innovative approaches to engage expertise within economies. This can increase the opportunities for co-ordination on complex issues that transcend economic boundaries.

Designing reforms to benefit those who need it most. This relies on a combination of embedding

inclusion goals up front in reform design, using a well-being framework to identify what matters most to populations, and using data to understand where disadvantage exists. Stakeholder consultation is important to identify need.

Protecting those most affected by reform dislocation. As part of the embedding inclusion goals

up front, reform design should be mindful that reform can create dislocation in industries and employment and shocks to economies causing recessionary impacts. As demonstrated by international evidence these effects can harm marginalised groups more significantly than others51. Thus, reform should include holistic approaches to mitigate shocks. Groups that can be especially vulnerable to reform shocks include those which: Are less skilled or in casual less formalised employment and are least able to have used income,

savings, assets, or insurance to protect themselves and/or recover from unexpected change. Thus, economic shock can slow their social mobility and entrench inter-generational disadvantage in their families.

Are already making tough choices between their essential and discretionary spending and shocks will increase the pressure on the marginal utility of their spending. This can cause them to cease spending on their and their children’s education and training particularly where it is

51 See Section 2 and the discussion in this paper generally

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more vital that they and their children work to support their families in times of economic hardship.

Have high levels of existing household debt. Over the last 40 years levels of household debt in

OECD countries have had to rise to maintain standards of living. This has occurred as a result of income failing to increase in line with productivity dividends, wages declining in favour of higher company profit shares and rising inequality in the distribution of income and wealth. Where household debt increases as a percentage of net disposable income, families are carrying a burden that disables them from withstanding economic change and shocks.

Fundamentally the application of reform and supporting regulation should be guided by that fact that “for those who have been able to move out of poverty, progress is often temporary: Economic shocks, food insecurity and climate change threaten to rob them of their hard-won gains and force them back into poverty. It will be critical to find ways to tackle these issues as we make progress toward 2030”52.

52 https://www.worldbank.org/en/topic/poverty/overview

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CASE STUDY 1: CANADA’S USE OF GENDER BUDGETING TO EMBED INCLUSION GOALS IN WHOLE OF GOVERNMENT POLICY MAKING

1. Introduction53 Gender equality and diversity are fundamental to creating a thriving and successful country that reflects Canadian values. Over the last four decades, the rise in women’s labour force participation has been a powerful driver of Canada’s economic growth, accounting for about a third of the rise in Canada’s real per capita gross domestic product (GDP), which translates into over $9,000 per person. Over roughly the same period, women’s median wages rose by 50 per cent in real terms, and the number of women graduating with Bachelor’s degrees overtook men—with women accounting for nearly six out of ten university graduates in 2017. While a lot of progress has been made toward advancing gender equality and diversity in Canada, there is still more work to be done. As a result of persistent social norms, women continue to spend more time than men on caregiving and household responsibilities which directly impact opportunities for full participation in the paid labour force. Additionally, occupational segregation presents large barriers for women in front-line public protection services, trades, and occupations in the natural and applied sciences. As a result, women are more likely to work in low-wage jobs. In addition to gender equality, diversity is a critical component of a successful economy. Diverse groups of women and men continue to face barriers which prevent them from reaching their full potential. Gaps in annual wages and salaries for visible minorities are considerable and employment and labor force participation rates for recent immigrants and people with disabilities remain lower than the average. The intersectionality of diversity and gender can exacerbate these inequalities. For example, recent immigrants had the lowest labour force participation rates in 2019 with recent immigrant women participating less than recent immigrant men. Encouraging more women and diverse groups of people to remain in or join the workforce would provide significant economic gains and help counteract the effects of population aging and slowing economic growth. Estimates show that if men and women participated equally in the workforce, Canada’s GDP could increase by as much as four per cent.

2. Pre-reform situation The term Gender Budgeting was first adopted in late 2015 to describe the conscious effort by policy makers to understand how decisions affect diverse groups of people differently, with a view to

53 This case study has been provided entirely by Canada without any editing by the consultants

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allocating government resources more equitably and efficiently. That said, gender considerations have been a mainstay of policy design for a long time in Canada, since the early 1990s with the application of Gender Based Analysis Plus (GBA+) in the development of policies and programs. GBA+ has evolved significantly over the last decade and in recent years the Government has prioritized and expanded this tool to a whole of Government approach to look at impacts across a range of intersectional lenses. The Canadian Gender Budgeting Act and the Gender Results Framework were two recent reforms that solidified gender budgeting as a core pillar of budget making. These reforms have allowed the Government to make meaningful investments towards greater gender equality and diversity that are underpinned by clear objectives and strong evidence.

3. Policy response Gender budgeting is a major element of the Government of Canada’s strategy to improve gender equality. National budgets are often the most comprehensive statements of a government’s social and economic agenda. By applying a gender and diversity lens to its national budgeting process, the Government can better anticipate how various policies and programs would affect diverse groups and prepare mitigation strategies for any unintended or negative impacts. Gender budgeting ultimately allows for more informed decision-making that takes into account all Canadians. Canada’s commitment to gender budgeting has been rooted in law since 2018 under the Canadian Gender Budgeting Act and leverages two key tools. The first is Gender-Based Analysis Plus (GBA+), a tool to assess how diverse groups of women, men and non-binary people may experience policies, programs, and initiatives. The “plus” in GBA+ acknowledges that GBA goes beyond biological (sex) and socio-cultural (gender) differences to consider other identity factors such as ethnicity, age, income level, and mental or physical ability. Canada has now mainstreamed GBA+ analysis into its national budgeting in the following ways: Any new policy and program, including tax measures, being considered for the federal Budget

requires a complete and detailed GBA+ analysis. This analysis is based on a standardized template to ensure a consistent approach is taken across the Government. A detailed user guide is available to assist Departments in completing the template;

Where negative or unintended impacts are anticipated, proponents of proposals are encouraged to include corrective or mitigation measures. Proactive program design or implementation elements that address existing inequalities in order to reduce barriers are also encouraged;

All public servants developing and analyzing policy and budget proposals are required to take GBA+ training;

The Department for Women and Gender Equality (WAGE), established in 2018, serves as a centre of expertise to guide these GBA+ analyses;

The federal Budget includes summaries of the GBA+ analyses (for example, see Budget 2019’s Gender Report); and,

All Departments must incorporate GBA+ performance reporting into their annual results reporting to Parliament.

The second tool is the Gender Results Framework (GRF), a set of policy goals and indicators for tracking Canada’s progress on gender equality (see below). It was developed with advice from experts in Canada and around the globe. By highlighting where Canada could do better, the GRF aids the Government’s priority-setting and decision-making in the federal budget process. In Budget 2019, the Gender Statement summarizes the current status and important actions taken so far to advance on a number of the GRF indicators. For up-to-date facts, data and analysis on gender equality, including those relevant to the GRF indicators, the public can also access the Centre for Gender, Diversity and Inclusion Statistics (by Statistics Canada) and the Gender Results Framework Portal (by WAGE).

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4. Impact Gender budgeting has helped the Canadian government reach a new level of gender and diversity-inclusiveness in its policy development. All Departments are now prompted to think about any impacts a policy has on gender and diversity from the early stages of policy development. These considerations are fully integrated in budget decision-making and are made public through the Budget’s Gender Report. Canadians can now see for themselves how policies are being evaluated through an equality lens and can better hold their Government to account. Some examples of recent government measures where parameters were strongly informed by gender budgeting and GBA+ analysis include: Employment Insurance (EI) Parental Sharing Benefit: Introduced in Budget 2018, this new measure

provides additional weeks of “use it or lose it” EI parental benefits. Research shows that an unequal sharing of caregiving responsibilities in the household is a major factor explaining Canada’s gender wage gap, contributing to fewer hours worked by women and lower earnings. Greater flexibility for parents receiving parental benefits, and incentives for men to take parental leave, can help balance caring responsibilities within the home and help drive a cultural change in workplaces. The fact that the Government’s GRF highlighted the gender wage gap and female participation in the economy as priorities in Budget 2018 helped lead to the inclusion of this new benefit.

Science Funding and Support for the Next Generation of Researchers: While funding for scientific

research results in discoveries and innovations that benefit all Canadians, GBA+ analysis found that there are disparities within the academic research community in Canada. For example, only 40 per cent of full-time teaching staff, and only 29 per cent of full professors, are women. The funding for science approved in Budget 2018 therefore included a number of initiatives intended to improve equity, diversity and inclusion in academia. For example, funding was provided to better support early-career researchers and new investments in Canada’s research granting councils were matched with commitments to advance gender equality. A strategic plan was also undertaken to grow the capacity of Indigenous communities to conduct research and partner with the broader research community.

Apprenticeship Incentive Grant for Women: As a result of needs revealed by the GBA+ analysis,

Budget 2018 took steps to encourage women’s representation in male-dominated—and better paid—skilled trades careers. It did so by introducing the Apprenticeship Incentive Grant for Women, a pilot project to double the financial support that women training in male-dominated skilled trades would receive.

Canada Training Benefit: In Budget 2019, the Government introduced the Canada Training Benefit

to help reduce barriers to upskilling for working Canadians. This initiative provides a refundable tax credit to offset tuition costs for training, income support during training, and job protection so that workers can take the time needed to keep their skills relevant and in-demand. As this measure was being developed, the GBA+ analysis identified potential barriers to access for lower-income Canadians. As a result, the initiative includes several features aimed at reducing barriers to access for lower-income individuals who may need it the most.

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5. Challenges and lessons High-quality GBA+ analysis requires early attention and robust data to develop effective policy options and strategies for Canadians. For GBA+ analysis to be most valuable, it is ideally built directly into the early stages of the policy development process. Based on the information provided by Departments that developed budget proposals, for 66 per cent of Budget 2019 measures the GBA+ analysis were performed early in the development phase or had been performed on the existing program. This engagement suggests a clear effort by the whole of Government to incorporate gender and diversity considerations early in the policy process, but also leaves room for further improvement. Challenges also remain in terms of consistency in approach to GBA+ assessments across Departments. To address this, a standardized template which every Department uses was introduced, training to government employees was provided, and key resources were identified in each Department to guide employees on GBA+-related issues. Finally, a recurring challenge in developing a robust GBA+ is access to data, particularly gender- and diversity-disaggregated data. In recognition of this, the Government provided resources ($7.5 million over five years) in Budget 2019 to three Departments (Canadian Heritage, Employment and Social Development Canada and the Treasury Board of Canada Secretariat) to improve the collection of disaggregated administrative data and strengthen reporting requirements. This will achieve greater consistency and comparability over time and across programs with the aim of improving the inclusiveness of the Government of Canada’s programs.

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CASE STUDY 2: NEW ZEALAND’S APPROACH TO EMBEDDING WELLBEING INTO POLICY

1. Introduction54 Evidence suggests that, at an aggregate level, New Zealand has a healthy, well-educated population with increasing material standards of living. There are however disparities in living standards across socio-economic and ethnic groups: Income inequality increased between the late 1980s and mid 1990s but has been relatively stable

since then.55 However, one in sixteen New Zealanders report they do not have enough money to meet their everyday needs, and this figure is significantly higher for Māori and Pasifika, the disabled, sole parents and young people (aged 15 to 24).56

There are inequalities across a broad range of other wellbeing indicators, including trust in public institutions, mental health, suicides, victims of homicide, housing quality and overcrowding, unemployment, qualifications, and life satisfaction.

New Zealand has recognised that the broad range of factors which matter to its population and distributional and intergenerational impacts are central to any definition of progress and the purpose of policy decision making. Two key responses to put this recognition into practice have been: The Treasury’s development of the Living Standards Framework (LSF)57 as a tool to support

policymakers to reflect broader factors more consistently – as well as distributional and sustainability impacts – in their advice. The purpose of the LSF is to ensure that social and environmental impacts are as systematically quantified and assessed as economic and fiscal impacts.

The New Zealand Government is drawing on the Living Standards Framework to support it in embedding the Wellbeing Approach in its budgeting, and in policy development across the public sector. The principles underlying the Wellbeing Approach are: making decisions and tracking progress using broader measures of success, beyond just GDP; breaking down agency silos and working across government; and consideration and prioritisation of long-term and intergenerational outcomes.

2. Pre-reform situation While governments have always been concerned about broader outcomes for citizens, complex economic and social inclusion issues in New Zealand society have persisted, despite changes to improve public service delivery. These changes include a series of reforms in the late 1980s that created a clear set of output-focused accountability measures for public sector agencies. While these reforms were largely successful at meeting their intended aim of improving overall public sector efficiency, some of the unintended consequences of these reforms included a tendency for public sector agencies to work in silos, and focus on their narrow outputs, as opposed to broader outcomes. An example of the complex economic and social inclusion issues that have persisted include the previously discussed inequalities by socio-economic background and ethnicity. Māori and Pasifika

54 This case study has been provided entirely by New Zealand without any editing by the consultants 55 http://socialreport.msd.govt.nz/economic‐standard‐of‐living/income‐inequality.html 56 https://www.stats.govt.nz/information‐releases/wellbeing‐statistics‐june‐2020‐quarter 57 https://treasury.govt.nz/information‐and‐services/nz‐economy/higher‐living‐standards/our‐living‐standards‐framework

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experience lower rates of secondary education attainment, poorer mental health outcomes, and a significantly higher percentage experience high levels of psychological stress when compared to other groups in society.5859

3. Policy response The Living Standards Framework The Treasury’s development of the LSF has been evolving since 2011, with the aim of ensuring its policy advice consistently reflects broader factors – as well as distributional and sustainability impacts. The most recent version of the LSF draws on the OECD’s wellbeing framework, the Better Life Index (BLI). Like the BLI, the LSF includes the domains of current wellbeing (12 in total60), as well as the four capital stocks (natural, human, social, and physical and financial) that underpin our wellbeing and our ability to sustain future wellbeing. The LSF also highlights that we need to think about distribution of wellbeing across people, places and time or generations.

The Treasury is aware of the need to adapt the BLI for a New Zealand context. The LSF adds a ‘cultural identity’ domain to the BLI to recognise New Zealand’s unique bi-cultural and multi-cultural context. As part of ongoing work to refresh the LSF, the Treasury is also exploring how to better reflect Te Ao

58 He Ara Oranga : Report of the Government Inquiry into Mental Health and Addiction 59 Budget Policy Statement 2019: https://treasury.govt.nz/sites/default/files/2018‐12/bps‐2019.pdf 60 The 12 Domains of wellbeing are: civic engagement and governance, cultural identity, environment, health, housing, income and consumption, jobs and earnings, knowledge and skills, time use, safety and security, social connections, and subjective wellbeing.

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Māori (New Zealand’s indigenous population) perspectives and knowledge systems into the LSF and its advice. This has included working with Māori thought leaders to develop a wellbeing framework based on the Te Ao Māori knowledge system and values61. The Treasury has released the Living Standards Framework Dashboard62 as a measurement tool to support the LSF. It provides a range of outcome indicators across the twelve wellbeing domains, and four capital stocks. Where data is available, the Dashboard provides international comparisons, distributional analysis, and time trends. The ‘Our People’ section allows users to explore inter-relationships across the wellbeing domains for different population groups. The Government’s Wellbeing Approach While The Treasury developed the LSF and the Dashboard as tools to improve the quality of its own advice, the current Government has adopted them to support its objective of embedding a Wellbeing Approach in its budgeting, and in policy development across the public sector, as part of a broader set of public sector reforms. This is a system-wide change in how the public sector works to move beyond narrow measures of success, take a whole of government approach, and look at intergenerational outcomes. It includes: The Budget process: Budget 2019 was the first time a Wellbeing Approach was used in the New

Zealand Budget process – from design through to publication. Analysis of wellbeing indicators, and other wellbeing evidence, informed the development of five Wellbeing Budget priorities – the areas where Government identified new spending could make the most impact on living standards63. In presenting funding requests, agencies were asked to outline and, where possible, quantify how their initiative impacted on the relevant wellbeing domains, as well as how they align with the Budget priorities.

Embedding a focus on wellbeing in the Public Finance Act 1989. The Public Finance Act (which

governs New Zealand’s public financial management regime) has been amended to require future governments to set out how their wellbeing objectives, together with their fiscal objectives, to guide their Budgets and fiscal policy. Additionally, the Treasury is required to report on New Zealand's wellbeing data at least every four years.

The Child Poverty Reduction Act 2018 puts into law a requirement to have measures and targets for

child poverty. The Act requires Statistics NZ to independently report on child poverty levels and for the first time in Budget 2019, the Government reported on the impact of budget initiatives on child poverty. The Act also creates a greater commitment by Government to address child wellbeing by requiring the development of a Child and Youth Wellbeing Strategy.

Strategic planning and performance reporting: The Treasury has advised agencies to apply an

effective wellbeing approach to their external planning and reporting so that Parliament and the public are better-informed through performance information with a wellbeing dimension and government and agency decision-making is improved.

61 To find out more about this framework, see https://treasury.govt.nz/publications/dp/dp‐20‐02 62 https://lsfdashboard.treasury.govt.nz/ 63 The five Budget priorities were: taking mental health seriously; improving child well‐being; supporting Māori and Pasifika aspirations; building a productive nation; transforming the economy.

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4. Impact It is too early to expect significant impacts to wellbeing as a result of the Government’s Wellbeing Approach. As noted, many of New Zealand’s wellbeing challenges are long-term and complex, for some of which (such as the impacts of technological disruption) the impacts are yet to be fully understood. Many of the measurement indicators used are slow-moving – that is, we do not expect to see measurable short-term impacts. However, some early impacts observed in the Budget 2019 process include64: The Budget decision-making process was more collaborative across government, with senior

officials, groups from different agencies identifying the focus for each Budget priority and Ministerial groups actively shaping development of Budget packages. At each stage, summary information on expected wellbeing impacts was included in advice, which led to additional rigour in shaping Budget advice.

Including this summary information helped direct new spending towards the areas highlighted by the wellbeing analysis. In the 2019 Budget this resulted in $1.9 billion directed towards improving mental health services and outcomes, and significant investments to address family and sexual violence, support low income individuals and families, and tackle homelessness.

The Government intended to maintain the same five wellbeing priorities for Budget 2020, with some refinements to provide clarity about particular areas of focus. It also sought to build on the use of Ministerial and officials’ groups in Budget 2019 by appointing a coordinating Minister for each Budget priority. In the event, however, the need to respond to COVID-19 meant that the spending packages based on these five priorities had to be reassessed and the focus for Budget 2020 became strengthening core public services and funding the recovery.

5. Challenges and lessons There are gaps in available data and measurement, and the LSF and the Dashboard are still evolving a result. It is expected that the LSF and the Dashboard will be refreshed in 2021 to incorporate Māori and Pasifika perspectives, and better consider the different ways in which culture contributes to wellbeing. Measurement of risk and resilience, and child wellbeing are also areas that need further development. It has been challenging to apply the LSF consistently when advising the Government response to the COVID-19 crisis, as many of the traditional data sources used for analysis are not produced frequently enough to inform an adaptive response strategy as the situation evolves. The Treasury has however published a diagnostic paper on the wellbeing impacts of COVID-19 using both the LSF and He Ara Waiora, a Māori wellbeing framework. 65

64 More detailed information can be found at: https://www.budget.govt.nz/budget/2019/wellbeing/index.htm 65 https://treasury.govt.nz/publications/dp/dp‐20‐02.

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SECTION 4: LEVERAGING STRUCTURAL REFORM FOR IMPROVED LABOUR PRODUCTIVITY AND SUSTAINABLE GROWTH (TOPIC # 2)

4.1 Background

4.1.1 Barriers to sustainable growth There is an integral link between inclusive and sustainable growth to the extent that is it arguable that growth cannot be sustainable if it is not inclusive. The barriers to inclusive growth explored in detail in Topic 1 are largely the same for sustainable growth. For example, key barriers include: Inequities in access and quality of services often experienced in regional areas compared to urban

ones. Poorer access to education, training, and healthcare services in regional areas in particular can reduce inclusion and therefore compromise the sustainability of growth.

Disparities in access to infrastructure between regional and urban areas. Less access to energy, transport, and information and communications technology in regional areas reduces the opportunities for economic participation and can therefore undermine the social mobility of regional populations. Outcomes which narrow opportunities to alleviate disadvantage or restrict access to wealth can reduce the sustainability of growth.

Accordingly, the structural reform solutions to address barriers to inclusive growth are largely relevant to also respond to impediments to sustainable growth.

4.1.2 Healthcare for labour productivity and sustainable growth The COVID-19 pandemic has highlighted the essential role of healthcare provision in enabling populations to continue to remain healthy, work and work safely. Equitable access to health infrastructure and services is essential to maintaining economic activity during a crisis and enabling economies to recover from a crisis. Thus, healthcare could be viewed as one key factor for improving labour productivity and the sustainability of growth. Some economies have identified healthcare as a vital element for inclusion in the 2021-25 agenda. Key lessons about healthcare are discussed in this section and some recommendations flow from this. A recent report by McKinsey66 provides a timely reminder that prior to COVID-19, policy discussions tended to focus on the need to control healthcare costs, rather than embedding healthcare provision as a key factor for economic growth. The report estimates that while it is forecast that the pandemic will reduce global growth by about 8 percent in 2020, poor healthcare provision costs global growth about 15 percent annually when premature death and lower productivity in the working age population are considered. The report offers four lessons from the COVID-19 crisis. These are: Make health a key part of economic growth discussions. Better health outcomes can promote

economic growth for some key reasons. If fewer people die prematurely the working-age population will increase. A healthier workforce reduces absenteeism, presenteeism, the need for carers leave and the need to retire early for health reasons, thereby boosting productivity. McKinsey estimates

66 https://www.mckinsey.com/industries/healthcare‐systems‐and‐services/our‐insights/how‐prioritizing‐health‐could‐help‐rebuild‐economies#


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that improved workforce health could add $12 trillion to global GDP in 2040, an 8 percent boost, or 0.4 percent annual faster growth. Such gains can assist economies recover from the COVID-19 crisis and strengthen the capacity of economies to respond to the economic pressures of an aging population.

Invest in health to build greater resilience. The COVID-19 pandemic has had a significantly higher impact, evidenced through the rate of hospitalisations and deaths, on people with underlying chronic health conditions, such as diabetes and heart disease. Chronic conditions are often preventable via early diagnosis, care plans, and better eating and lifestyle choices. The report emphasises the need to invest in early interventions, such as primary care, medication programs and education programs for behaviour change to reduce the incidence of chronic disease. McKinsey estimates that doing this could reduce the global disease burden by 40 percent over 20 years. Investing in health can also build resilience against future health shocks and protect populations and economies against the potential long-term health impact of COVID-19.

Promote social and economic equity by improving health. According to the report, ill health

may perpetuate the poverty trap for poorer people. This is because “poor childhood health translates to lower socioeconomic status in adulthood, increasing the exposure to health risks (such as poor-quality nutrition, unsafe housing, and unsafe neighbourhoods) and the barriers to accessing health services, which then affect subsequent generations of children”. Health services can help to break this cycle if correctly tailored to the particular needs of communities. The COVID-19 pandemic has also exposed the reality that while many white collar workers can work from home, blue collar and service workers in low income jobs have been unable to do so because of the nature of their work. These workers are thus more exposed to the risks of COVID-19 and the risks of the poverty trap referred to in the McKinsey research.

Build on the innovation momentum sparked by the COVID-19 crisis to address other health

conditions. The response to the pandemic has included the speedy transformation of health infrastructure and services, such as increased manufacture of ventilators and creation of COVID-19 wards; as well as changes in some population behaviours, such as social distancing and mask wearing. The crisis has also stimulated new collaborations in medicine development, such as vaccines and antigens. According to the McKinsey report “as of June 2020, scientists around the world had shared more than 50,000 viral genome sequences, and around 180 vaccines were in the pipeline, many representing cross-sector and cross-country collaborations”. The report suggests that heath investments should optimise these actions, particularly because “healthcare innovations will be needed to prevent or treat diseases for some 60 percent of the global disease burden that cannot be tackled effectively today”.

4.1.3 RAASR support for labour productivity and sustainable growth The RAASR already contains a framework for targeted structural reform that can be used to promote productivity and sustainable growth. For example, the objectives specifically guide economy actions towards sustainable growth. Pillar 1 includes the need for competitive markets and pillar 3 captures the aim of economic resilience that are necessary to support sustainable growth. Arguably the core structural reforms, and in particular competition policy and regulatory reform, have a key role to play in improving labour productivity. See table 1 in section 3.1 of the paper on Topic 1. The RAASR is relevant because the deeper and longer economies remain competitive in international markets the higher the productivity benefits and the larger opportunities for sustainable growth. As explained later in the economic growth that is spurred by productivity can help also to provide

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sustainable policies.67 Competitiveness in services is an increasingly important feature of international competitiveness, particularly because of the enabling dynamics of technological change and digitalisation.

4.1.4 Labour productivity and structural reform Average labour productivity is the level of output per employed worker or hour of work in an economy. Multifactor productivity is the quantity of goods and services produced per combined input of labour and capital. These measures are intricately linked to what people get paid and what a typical person consumes in a given year. It is a measure that indicates the wealth of a nation and how rich it is. Productivity growth rates in many countries declined in the 1970s and 1980s when economies were increasingly overburdened with regulations and protective measures. During competition reforms of the 1990s this was reversed with, in many cases, large increases in productivity. To some degree, it is believed, these rates were also boosted by the revolution in information technology. However, in more recent years growth rates have declined and are relatively slow. This is despite the ongoing technological developments. Some analysts have conjectured that a lot of the latest innovation has been in the consumer products area such as smart phones and entertainment products, rather than in business oriented areas that would lead to greater labour productivity. In many economies, including high income ones, in recent years the real wages of highly skilled workers have continued to rise while the real wages of less skilled workers have in many cases declined or at least stagnated. This has been blamed on globalisation and on technological change. COVID-19 is a non-structural issue which may have a significant impact on multi-factor productivity. Global thinking affirms that certain structural reforms, such as competition policy, regulatory reform and human capital development are particularly important when seeking to improve labour productivity. As discussed elsewhere in this paper the same reforms also help to promote inclusion. The OECD considers that there is a strong link between labour productivity and inclusion issues. For example, it suggests that68: A common feature of reforms across economies intended to boost inclusion is that they also equalise

opportunities for all workers to succeed in life. Education is the most common reform priority in economies because it is essential to ensure current

and future generations find quality employment and lead more productive careers. Resolving labour market segmentation and improving the conditions for labour market inclusion of

women, migrants, minorities, and older workers are also critical to extend the benefits from growth. The Productivity Commission in Australia has recommended that economies improve productivity ‘not, as some would have it, by extracting more sweat from the brow of an already hard-working people’. Rather it recommends that economies do so by: Not standing in the way of better investment in workplaces. Not opposing the research and trialing of new ideas.

67 E.g. see Kristalina Georgieva, Stefania Fabrizio, Cheng Hoon Lim, and Marina M. Tavares, “The COVID 19 Gender Gap”, IMF Blog, 22 July 2020 and Kristalina Georgieva, “The Next Phase of the Crisis: Further Action Needed for a Resilient Recovery”, IMF Blog, 16 July 2020 68 OECD, Going for Growth 2019


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Not defending outmoded regulation that prevents consumers and businesses obtaining access to better services.69

These responses along with targeted human capital investment and the extension of social protections, particularly to those most in need, will be especially necessary to minimise economic dislocations, such as that caused by COVID-19 and the increasing use of technology and digitalisation to underpin work and services. The combined impacts of these issues along with the limitations to which trade and consumption can drive growth mean that structural reform must be central to productivity improvements. The Australian Productivity Commission has recommended a policy framework with three priorities to help economies respond to the demands of disrupting events. These are as follows.70 Incentives which drive productivity. These are improvements to competition including reducing

barriers that inhibit international trade or new entrants to markets.

Capabilities which enable the responsiveness of an economy. These include human capital, such as labour market reforms, improving infrastructure and institutions to devise productivity-enhancing changes and provide an effective level of support.

Flexibility which enables the responsiveness of an economy. This includes regulatory reform to

improve the capacity of an economy to change quickly.

4.1.5 Sustainable growth and structural reform According to the OECD, the delivering sustainable growth relies on economies pursuing “structural reforms that boost long-term growth, improve competitiveness and productivity, create jobs, and ensure a cleaner environment and equal opportunities for all”71. Structural reform policies can support sustainable growth in various ways including the following72. Obtaining a quality education is the foundation to improving people’s lives and sustainable

development. Structural reform for human capital development is central to this and can include infrastructure investment in schools, training facilities and information and technology services to extend access to education services to urban and regional areas. It can also include funding programs to support education for youth and adults, people with disability and other groups with special needs.

Decent work and economic growth. Sustainable economic growth will require societies to create

the conditions that allow people to have quality jobs. Regulatory reform to secure safe, reliable, and rewarding working conditions and benefits for people is a key tool to deliver this. Regulatory reform to extend social protections for people looking for work is also an important structural reform.

Extend access to basic infrastructure like roads, energy, water, and sanitation to all

populations. Structural reform can support this via regulatory regimes which enable public private partnerships (PPPs) for infrastructure development. To be successful PPPs usually need to include

69 Productivity Commission (2017b), Shifting the Dial – 5 year productivity review, Inquiry Report No 84, Melbourne, 3 August, 7 70 Banks, Gary (2012), “Advancing the Reform Agenda: Selected Speeches”, Productivity Commission, Melbourne, p10‐20 71 OECD, Going for Growth 2019 72 Aegis Consulting Group analysis based on international project experience

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satisfactory rates of return for private investors and the use of Community Service Obligations (CSOs) which ensure the kind of universality of service provision which governments want to pay for. It can also be supported via planning laws which require developers to contribute to the cost of government infrastructure delivery in return for the rights to develop. Competitive markets for the financing, construction, and operation of infrastructure and services is essential to ensure PPPs and developer contributions remain value for money for governments. A further way structural reform can enable this goal is to ensure that public or privately owned natural monopoly infrastructure is subject to competition law which provides third parties with access rights under negotiated and enforceable conditions. This ensure that services markets which rely on infrastructure remain competitive.

Reduce inequalities. To reduce inequalities, policies should be universal in principle, paying attention to the needs of disadvantaged and marginalized populations. Regulatory reform focused on extending social protections and supporting the aspiration and social mobility of communities is key to achieve this. In particular for post-COVID recovery policy making it is important to identify the non-economic impacts of COVID-19 on many aspects of quality of life and describing the broader approaches to well-being measurement adopted by some countries. Sustainable policies should include social dimensions such as identifying vulnerabilities that come from future economic shocks and therefore building resilience; making sustainable investments; strengthening public health system capacity; improving social safety net; increasing access to education; and raising efforts to promote wellness and community engagement.

Development that is compatible with preserving environments, reducing waste and support recycling and circular economies. Structural reform can include environmental regulation, such as waste levies, to discourage landfilling and promote recycling and ensuring that waste services and infrastructure can meet demand created by population and consumption growth. Infrastructure and services investment can be supported by public funding and the appropriate long-term waste policy strategies, waste pricing models and reliable frameworks for market competition needed to attract private capital.

The 17 Sustainable Development Goals (SDGs) agreed by the United Nations in 2015 provide a globally accepted framework in which to pursue growth that is sustainable and therefore by definition inclusive. The goals are intended to be achieved by 2030 and have the objective of ending poverty, protecting the planet and improving the lives of all people73. The United Nations suggests that achieving these goals helps to reduce a range of economic and social costs. It considers that: “Those who do not have access to education, land or the labour market cannot fully contribute to society or to the economy. Exclusion has political costs as well, as it reflects and feeds social tensions and is at the root of many violent conflicts around the world. Exclusion further interacts with environmental risks because excluded individuals and groups, especially those living in poverty, frequently inhabit areas that are more vulnerable to natural hazards and disasters, and are disproportionately impacted by disasters as a result. Exclusion makes societies not only less cohesive, but also less safe and productive”74. APEC work has consistently aligned with much of the 2030 Sustinable Development Agenda.

73 https://www.un.org/sustainabledevelopment/development‐agenda/ 74 https://www.un.org/sustainabledevelopment/blog/2016/10/press‐release‐united‐nations‐urges‐commitment‐to‐fight‐humiliation‐and‐exclusion‐to‐end‐poverty/


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4.2 Current APEC priorities 4.2.1 Services competitiveness for labour productivity In support of the RAASR, APEC Leaders agreed in 2015 to the APEC Services Competitiveness Roadmap (2016-2025). They called for the development of a strategic and long-term Services Competitiveness Roadmap with actions and mutually agreed targets to be achieved by 2025.75 APEC leaders noted the importance of services to future growth, particularly new technologies. This was seen as a way to help the participation of women and MSMEs to participate in trade. It also had the potential to significantly boost productivity. Therefore, it was important to address barriers that inhibit competition in service markets and to help facilitate trade and cross-border investment.76 The Roadmap included a range of targets and APEC Leaders noted that meeting these targets will require APEC members to develop some of the most dynamic and efficient services markets in the world.77 The principal part of the services competitiveness agenda that leads to productivity improvement lies in the digital area. We discuss this in more depth in the next section.

4.2.2 Digitalisation for labour productivity and sustainable growth Within an increasingly digitalised world the disruption caused by evolutionary and revolutionary technological change can have various impacts on productivity. It can also exacerbate inequities and economic exclusion where access to digital platforms and the benefits of digitalisation are not extended to groups which already suffer from geographic or economic isolation. The APEC Framework on Human Resources Development in the Digital Age, which was released by Leaders in Ha Noi, Viet Nam on 15 May 201778 noted that “the emerging digital age and fourth industrial revolution is having an unprecedented impact on the way people live and work.” It went on to state that socially vulnerable groups deserved decent work and work/life quality and that providing access to quality education and vocational training, boosting entrepreneurship; improving social protection; and enhancing regional cooperation, were all important goals. Further it was noted that adopting digital technologies and automation techniques can not only increase labour productivity but also enable the development of new business models, new markets, and job opportunities. However, APEC Leaders also noted that, at the same time, digital technology may be disruptive and that these changes will likely render some occupations obsolete and expose more workers to vulnerable employment79. APEC Leaders were also concerned that the risk of automation could deny poorer economies the opportunity for economic development resulting in new digital divides and greater inequality. They

75 APEC Services Competitiveness Roadmap (2016‐2025), APEC Leaders, 2015 76 Ibid 77 Ibid 78 https://www.apec.org/Groups/SOM‐Steering‐Committee‐on‐Economic‐and‐Technical‐Cooperation/Working‐Groups/Human‐Resources‐Development/Framework 79 According to 2016 (ILO) report: "ASEAN in Transformation: How Technology is Changing Jobs and Enterprises?", automation could have significant implications for labour‐intensive manufacturing sectors. It could result in large displacement of mostly low‐skilled workers. In the auto sector alone, over 60% of salaried workers in Indonesia and 73% in Thailand could be displaced by automated production. In Viet Nam, about 75% of workers in electronics and 86% in apparel and footwear are also at risk of automation.

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noted that this could result in “premature de-industrialization” in many developing economies before reaching the threshold of industrialization achieved by developed economies.80 Equity issues were still priorities for the Leaders, and they noted that the advancement in technology had led to a pressing need for human resources development including research into the implications for the labour market, education, training, and reskilling. To respond to these challenges the HRD Framework proposed that priority areas of action were to be: Future of work in the digital age and labour market policy implications. Skills education and training. Social protection. Importantly this included development of joint programs, projects and initiatives to promote cooperation and exchanges of best practices to: underscore the impact of the governance of work on APEC economies, considering gaps in decent work and increasingly fragmented production processes, as well as to examine new forms of employment relations and workers’ association in the context of polarization and personalization of work; and assess new forms of work arising from increased digitalisation, including the growth of virtual work and the “gig economy”81 under which the demand and supply of working activities is matched online or via mobile apps and its implications on the changing nature of employment relationships, social protection and labour mobility.

4.3 Key lessons for the 2021-25 agenda from 2016-20 actions

4.3.1 Overview The discussion here is a summary of the key lessons from the implementation of the RAASR in 2016-20 and what those lessons mean for the 2021-25 agenda, but particularly the capacity of the future agenda to assist the COVID-19 economic recovery. More detailed information on the implementation of the RAASR in 2016-20 is provided in Appendix 3. Many of the reforms detailed in Appendix 3 and discussed in Topic 1 have been designed to promote inclusion but also deliver labour productivity and sustainable growth benefits. This is because actions to pursue equity can lift productivity and protect the sustainability of growth. The purpose of this section is simply to draw some common themes from the implementation of the 2016-20 RAASR relevant to the development of a future agenda and provide some examples of economy actions representing those themes.

4.3.2 Reforms under the RAASR pillars to promote labour productivity and sustainable growth

This discussion is based on the RAASR reporting of economies. Labour market reforms Improving working conditions for formal and informal sectors and ensuring that workers have access to reliable and sufficient unemployment insurance or other social welfare protection while they are

80 Rodrik, D. (2015). “Premature Deindustrialization,” NBER Working Paper No. 20935. 81 The “gig economy’ includes two forms of work “crowdwork” (jobs through online platforms) and “work‐on‐demand via apps” (e.g. Uber, Taskrabbit etc.)


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seeking work are ways that economies can promote labour productivity. That is because such programs provide a bridge that allows for further education and maintenance of skills.82 These initiatives can assist to increase employee commitment to their work and promote aspiration as well as avoiding the loss of skills from the employment market. Economies can pursue these objectives via additional funding, service improvements, institutional reform, and/or regulatory reform. Canada is one economy that has invested in improving its system of employment insurance to increase protection for workers looking for work or undertaking training to support their capacity to secure work. Canada has reported these reforms as part of its initiatives in pursuit of pillar 2. Its reforms include the following funding and service measures: Expanding access to Employment Insurance (EI) for new entrants and re-entrants. Temporarily extending EI regular benefits in regions experiencing the sharpest, most severe, and

sustained increase in unemployment. Reducing the EI waiting period from two weeks to one. Allowing claimants to pursue self-funded training and maintain their EI status. Allowing claimants to undertake some work while receiving EI. Improving flexibility of EI to better support parents and family caregivers. Launching a pilot project was launch to better support workers in seasonal industries. Improvements to the process of claiming and receiving EI. Indonesia is another economy that has taken steps to introduce and expand social protections for workers. It has done this by reforming the institutions of government by establishing a new Workers' Social Security Agency. Indonesia has reported these measures as part of its general economic reform packages which are designed to achieve pillars 1 and 2. The new agency administers a universal social security consisting of a pension scheme, old-age, workplace injury and death benefits. By 2021 Indonesia intends for 80 percent of formal workers and 15 percent of non-formal worker to be registered by the new agency. Korea has taken specific steps to ensure that non-regular and regular workers enjoy the same protections and benefits. It reports that these steps were taken to achieve pillar 3. It has pursued this objective by introducing the Fixed-Term Employees’ Job Security Guidance 1 and other regulatory changes which sought to: Narrow the wage gap between non-regular workers and regular workers. Enable the enforcement of rules preventing discrimination of non-regular workers. Encourage companies to convert fixed-term employees to regular workers and alleviate

discrimination between regular and non-regular workers. Education and skills training Investments by economies in education and training to boost labour skills is a clear way to lift productivity. This is particularly important to the capacity of economies to meet the demand for technology, innovation and digital services which evolve rapidly. Expanding skills training to older people, women and other groups who be seeking to enter or re-enter the workforce after some absence is one tool to promote the widest possible workforce participation and competitiveness in labour markets to drive productivity.

82 Era Dabla‐Norris and Changyong Rhee, “A New Deal” for Informal Workers in Asia”, IMF Blog, 30 April 2020 and Vitor Gaspar, W. Raphael Lam, and Mehdi Raissi, “Fiscal Policies for the Recovery from COVID 19”, IMF Blog, 7 May 2020

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Canada is one economy which reports prioritising post-secondary education as part of its efforts to achieve pillar 2. It has introduced a mix of funding and services to expand access to education and skills training for people who have not acquired secondary school qualifications in the usual way and wish to upgrade their skills. These reforms have included: Increasing grants for students from low and middle-income families and for part-time students. Increasing the loan repayment threshold for student loans to make student debt more manageable. Expanding eligibility for student grants to extend non-repayable assistance generally and increase

assess to post-secondary education for adult learners, people with dependent children, and people with disability.

Enabling grant recipients to work without reductions in their financial assistance. New programs to increase Work Integrated Learning opportunities. Additional funding of graduate level scholarships for research and innovation. The Philippines has prioritised Technical Vocational Education and Training (TVET) as part of its pursuit of pillar 3. It has done this by creating two distinct programs defining the TVET sector and making them available nation-wide. TVET for Global Competitiveness caters to the needs of wage/self-employed workers, industry

workers, and trainers in need of skills upgrading, basic and higher education graduates, and workers needed in emerging technologies and newly established companies.

TVET for Social Equity is designed to assist disadvantaged groups gain and/or increase their economic independence and contribution. Its skills and training programs are targeted to various groups including informal workers, Indigenous peoples, farmers and fisherman, people suffering from substance abuse, victims of domestic violence and human trafficking, returning overseas foreign workers, and persons with disabilities.

Infrastructure investment Infrastructure investment that expands workers access to work and capacity to produce and increases business access to markets is one important way to lift labour productivity. Harnessing a mix of public and private capital is often useful to increase infrastructure investment. Chile is one economy that has undertaken reforms of its pension sector to stimulate capital investment in infrastructure. It reports that it has pursued this to achieve pillar 1. It used regulation to authorise public pension funds to make investments in alternative assets like infrastructure, operations and contracts representative of real estate assets, private equity, private debt, and other assets traded in private markets. One benefit of this was enabling capital to address inequities between urban and rural areas with respect to transport, health and education infrastructure and services. Regulatory reform to facilitate business Regulatory reform that improves public sector productivity and increases certainty and reliability for business in relation to government decision/rule making is a key incentive to attract investment. Malaysia is one economy that has pursued this in order to achieve pillar 1. Malaysia’s 11th Plan has focussed on enhancing the productivity and efficiency of the public service. Key reforms have included: Establishing a national online public consultation platform to create a more inclusive regulatory

assessment process and increase confidence in Government decision making. Benchmarking Malaysia’s approach to regulatory assessment public consultation processes with

other APEC economies. Robust public consultation processes are considered by Malaysia to be essential to address inconsistencies between regulations at Federal, State, and local level and move towards a whole-of -government approach to regulation.


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Strengthen the public policy engagement between the government and the private sector via increased regular communication and publication of government policies and guidelines.

Annual efforts to build the public sector’s capacity to conduct and manage Regulatory Impact Assessment (RIA) of regulatory proposals.

Publication of an Annual Report on Modernisation of Regulations (ARMR) to share improvements in the regulatory environment with stakeholders.

Social policies to promote sustainable growth Many examples in Appendix 3 demonstrate the use of social policies to secure the sustainability of growth across population cohorts. These include the use of social safety nets for the vulnerable, and child-care support to encourage women’s workforce participation. Policies to promote sustainability APEC has a had a long history of promoting the need for sustainable development that promotes economic growth while also preserving environments and natural assets. Efforts by economies during 2016-20 to implement structural reform for sustainability can be categorised in the following ways. Clean technology Canada has pursued some reforms as part of its efforts to achieve pillar 1 and 3. For example it has: Provided funding to support the research and development and demonstration of clean technology,

including in the forestry, fisheries, mining, energy, and agriculture sectors. Allocated funding to support the deployment of infrastructure for alternative transportation fuels. Creating the Clean Growth Hub to improve collaboration amongst stakeholders for clean

technology development. Environment sustainability Canada has also undertaken some funding, institutional and regulatory reforms to specifically reduce carbon emissions as part of its initiatives under pillar 1 and 3. These include reforms to address climate change and air pollution, restore ecosystems and increase public trust in the environmental assessment processes. For example, it has: Created a Low Carbon Economy Fund which invests in local projects that can reduce Greenhouse

Gas Emissions. Invested in specific action to address air pollution and strengthen ocean and freshwater research. Through the Canada Infrastructure Bank (CIB), invested in green infrastructure projects. Provided funding for projects that can increase energy efficiency in residential, commercial, and

multi-unit buildings. Introduced via legislation a federal carbon pollution pricing system which includes a fuel charge

and an output-based pricing system for industrial facilities, and can be voluntarily applied by local jurisdictions or automatically applied in jurisdictions which do not have carbon pricing mechanisms consistent with the federal requirements.

Prioritising ESD Making ESD an integral part of the investment landscape is one clear way to encourage markets to pursue sustainable development. Chile is one economy which has adopted this approach as part of its efforts to achieve pillar 1. Its Financial Market Commission (CMF) has commenced a regulatory assessment process for a proposal requiring entities to publish more transparent information about their ESG commitments and practices to enable investors to evaluate and select those financial products that best meet their investment criteria. Chile proposes that APEC could contribute by making a progress

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report on ESG implementation and its relationship to business investment and private sector confidence throughout the APEC region.

4.4 Overview of recommended 2021-25 agenda

4.4.1 Framing the agenda To ensure that pillars and actions in the future agenda are properly responsive to the economic and social risks created by the COVID-19 pandemic, economies suggest that the current pillars be adjusted to reinforce the need for structural reform to promote equity. To achieve this, economies suggest that the new pillars should: Reinforce the need for economies to prioritise holistic approaches to reform so that any negative

consequences of change are avoided, mitigated or off-set by complementary social policies in the design stage. This is consistent with the ‘integrated approach’ in the EC’s 2018 policy framework.

Include a specific focus on COVID-19 economic recovery strategy with an emphasis on building collective resilience against future shocks. This could include identifying vulnerabilities to future economic shocks, and methods to make sustainable investments, improve the application of social safety nets, and increase access to education. In this context the future agenda should reflect the need for sustainable policies to have environmental, economic, and social dimensions in the COVID recovery context.

Prioritise inclusivity in COVID-19 recovery policy making. This includes emphasising well-being as an outcome of reform and incorporating wellbeing measurement as an important indicator of recovery progress.

Include a specific focus on structural reform and international cooperation to improve public health capacity and services. This is because COVID-19 has exposed the importance of public health to inclusive and sustainable growth as well as labour productivity.

Recognise that digitalisation will have a significant impact on labour productivity and sustainable

growth and that structural reform supporting digital capacity needs to minimise risks and maximise opportunities. For example while digitalisation may shift many jobs and economic activities on-line, the COVID-19 pandemic has demonstrated that economic and labour market impacts can be felt disproportionately by groups who are less digitalised, such as low income workers and regional populations. Accordingly addressing poverty in digital age will be critical to inclusive growth.

Reinforce the need for structural reform to support vulnerable segments of society such as MSMEs, youth, older workers, women, people with disability and Indigenous people.

Emphasise the need for global cooperation to enhance the resilience and reliability of global supply chains and maintain open and competitive markets.

4.4.2 Implementing the agenda Increased guidance for economies Economies remain supportive of the guidance provided by the EC’s 2018 policy framework which offers three approaches to the design and implementation of structural reform. There is a view that the ‘integrated approach’ in the policy framework offers an optimal pathway to shape holistic reform in response to the challenges posed by COVID-19. This ‘integrated approach’ suggests developing holistic


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policies which can combine the core structural reform actions, pro-inclusion market deepening reforms and other broader policies and programs to promote social inclusion and equity. Analysis by the consultants indicates that to promote equity as a common theme underpinning inclusive and sustainable growth and labour productivity the structural reform agenda could be more tangibly linked to the APEC Action Agenda on Advancing Economic, Financial, and Social inclusion (the AAEFSI). Doing so would support implementation of the ‘integrated approach’ and be consistent with the recommendations of the APEC Vision 2040 Group. One way to achieve this is to include the AEEFSI indicators in the reporting by economies on structural reform and give economies an opportunity to respond to these indicators. Given the challenges to structural reform created by COVID-19 and the importance of effective recovery policies, the consultants also observe that additional guidance could be developed for economies on the use of evidence to design and continuously evaluate reform, measures to support MSMEs for the purposes of boosting productivity and best practice human capital development and labour market reforms. Wider collaboration and knowledge sharing Economies consider that collaboration and knowledge sharing will be particularly important to implementing effective COVID-19 recovery strategies. Collaboration will be especially helpful to overcome barriers to structural reform. Some identified barriers and measures to address them suggested by economies include: There is the heightened potential for trade protectionism as international supply chains break down.

To assist address this the EC should stress the importance of strengthening the connectivity between the Friends of the Chair (FotC) Groups and the Competition Policy and Law Group (CPLG).

The economic reality of increasing business bankruptcies and high unemployment in combination with lower fiscal headroom available to support economic output is a significant barrier to the 2021-25 agenda. At the same time, the disruption may create new economic opportunities and higher community support for reform. It would be useful for the EC to facilitate knowledge sharing by economies on recovery strategies. This could include for example, best practices in prioritising government resource allocation in constrained fiscal environments and a compilation of best practices for the assessment and evaluation of structural reform policies and actions.

Deeper evaluation The consultants observe that the future agenda could benefit from additional evaluation tools to facilitate comparison of economy actions. Widening the scope for comparison is likely to be necessary to assist further collaboration and knowledge sharing between economies in their effort to design and implement effective COVID-19 recovery strategies. It is suggested that evaluation could be enhanced by encouraging economies to report on how their reforms: Align with the six core structural reforms. Promote inclusive growth and/or mitigate the negative impacts on inclusive growth of COVID-19. Align with the indicators in the AAEFSI.

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4.5 Policy recommendations

Recommendation 7 – policy areas for priority attention in relation to labour productivity Consistent with taking a holistic approach to structural reform, including responding to the impact of COVID-19 on employment and vulnerable demographic groups and particular cohorts in labour markets, the EC should consider prioritising the following policy areas for attention, research, and collaboration by economies: More effective promotion of digitalisation and the impact of digitalisation on labour productivity

and economic growth. The use of broader competition policy tools, such as market investigations, to boost competition,

innovation, and overall productivity. The further promotion of women’s economic and workforce participation via

anti-discrimination laws, access to finance, credits, and markets and other measures. Sustainable responses to the risks of long-term youth unemployment. The enduring economic inclusion of older workers, including via employment, volunteering, and

the provision of mentoring services. The long-term economic inclusion of people with disability, including via recruitment and retention

policies. The enduring economic inclusion of informal workers, including via the equalisation of working

conditions and benefits for the formal and informal sectors.

Recommendation 8 – policy areas for priority attention in relation to sustainable growth Consistent with taking a holistic approach to structural reform, including responding to the impact of COVID-19 on the sustainability of growth the EC should consider prioritising the following policy areas for attention, research, and collaboration by economies: Inclusive recovery from the damage caused by COVID-19 crisis as this is a crucial stage to support

sustainable growth. The importance and role of health infrastructure to support economic resilience and support

productivity. The use of social safety nets to complement structural reform outcomes, such as through the targeted

use of safety nets to specifically address negative impacts of reform. The embedding of social equity principles in reform programs to promote sustainable access to

services, products, and markets. The further promotion of digitalisation to support sustainable growth and labour productivity. Mitigating the risks that population groups which do not benefit from digitalisation may experience

increased disadvantage and poverty. The rationales for the recommendations in 7 and 8 are similarly based on the principle of equity and are therefore discussed holistically here. Rationale – digitalisation The links between digitalisation and productivity have been discussed earlier in this paper and the impact of structural reform on the digital economy is the sole subject of a separate input paper being considered by the EC. Thus, no further discussion is offered here. However, it should be noted that in 2018 the High‐Level Structural Reform Officials’ Meeting informally identified gaps and priorities in the structural reform agenda. Many of those gaps and


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priorities have been since progressed by the EC83. Although one – a workshop on structural barriers to MSMEs’ full participation in the digital economy, including those in remote areas and women‐led and indigenous‐run MSMEs – remains outstanding. One key action in the 2021-25 agenda may be for the EC to progress this. Rationale – competition policy for productivity Competition policy is essential to boosting productivity especially when it makes markets fairer, discourages conduct which reduces competition, equalises the bargaining power of big business and MSMES in supply chains, and reduces barriers to entry. But its benefits exceed this. For example, the OECD considers that “opening up markets to entry, competition and foreign trade and investment is essential for innovation, the diffusion of digital technologies and ultimately productivity growth and social inclusion”84. This is why competition policy remains amongst the top priorities of economies. Given this it may be helpful for the economies to use competition policy tools to boost competition in services, product and labour markets. This can lift innovation and productivity. Tools include the use of market investigations/reviews to examine market structures and activities as well as embedding competition policy objectives in the design of policy, like the APEC Services Competitiveness Roadmap (2016-2025) seeks to do. For market investigations to be effective economies need to have the appropriate policy infrastructure in place. For example, the policy infrastructure needed to govern competition and maximise its benefit for productivity could usually include the following elements.85 Appropriate competition policy laws and regulations which guard against activities that

substantially lessen competition. Laws should cover the business activities of private and government owned companies.

There should be an independent or semi-independent regulator to monitor and enforce competition laws.

There should be an independent or semi-independent body tasked with reviewing, researching, and recommending productivity enhancing reforms.

All new legislative proposals should be subject to a competition test to ensure that they do not reduce competition unless the benefits of doing so outweigh the costs (the public interest test).

All existing legislation should be reviewed by governments annually to identify and amend anti-competitive clauses unless the benefits of retaining those clauses outweigh their costs (the public interest test).

Government owned businesses should separate natural monopoly infrastructure/services from contestable ones to enable competition in upstream and downstream markets.

Natural monopoly infrastructure, whether owned by the private or public sector, should be subject to third party access regimes enshrined in competition law. This enables competition in upstream and downstream markets based on fair access to infrastructure.

Where governments retain the provision of business services those activities should be subject to the prevailing corporation’s or companies’ laws in economies. In addition commercial activities provided by government businesses should be made competitively neutral by (a) ring-fencing them from subsidised activities like community service obligations; (b) subjecting them to the same taxes, charges and regulation as private sector competitors; and (c) subjecting their pricing to independent oversight and complaints resolution.

83 Advice by the RAASR Action Team and PSU 84 OECD, Going for Growth 2019 85 Aegis Consulting Group based on an analysis of OECD recommendations and Australian and New Zealand competition reforms

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Privatisation of government services is often considered an important tool to facilitate efficiencies in markets and the production of goods and services. However, for privatisation to be genuinely economically successful and productivity enhancing it must go hand in hand with strong competition laws so that public monopolies do not simply become privately-owned monopolies. Rationale – women Impact of COVID-19 As discussed in Topic 1, it is estimated that women will bear the brunt of the COVID-19 pandemic impact. This is because women86: Predominate work in social sectors, such as services industries, retail, tourism, and hospitality, that

require face-to-face interactions. These sectors are hit hardest by social distancing and mitigation measures, and tele-working is not an option.

Are highly likely to work in the informal sector in low-income countries, with less employment protections such as paid sick leave, insurance, and pensions.

Are the more than likely to be the primary carers in their families and therefore taking on the responsibilities for home schooling and caring for elderly relatives arising from COVID-19 shutdown measures.

Are at higher risk of losing long term human capital, particularly developing countries, where young girls are forced to drop out of school and work to supplement household income. Without education, girls suffer a permanent loss of human capital, sacrificing productivity growth and perpetuating the cycle of poverty among women.

Existing APEC initiatives APEC created the Policy Partnership on Women and the Economy (PPWE) in May 2011. The PPWE is the main fora tasked with incorporating gender perspectives into policy discussions and coordinating gender activities across APEC economies and within APEC working groups. Beyond its commitment to PPWE, APEC has developed various measures to frame its pursuit of economic inclusion, especially for women. This includes the: APEC action agenda on advancing economic, financial, and social inclusion (the AAEFSI). APEC framework on human resources development in a digital age. APEC services competitiveness roadmap. Since 2015 the PSU has supported the PPWE with a dashboard of performance which includes multiple indicators to measure the economic inclusion of women. The 2019 dashboard assessment indicated some positive results and areas needing improvement. There is an opportunity to tackle these areas requiring attention in the structural reform agenda 2021-25. Need for further efforts to promote women’s economic inclusion Despite these efforts a 2019 PSU assessment87 suggested that there are some key barriers needing attention to better promote women’s economic inclusion. The COVID-19 impact may make these barriers more acute. These barriers include the following:

86 https://blogs.imf.org/2020/07/21/the‐covid‐19‐gender‐gap/ 87 PSU, APEC Regional Trends Analysis, November 2019


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Despite the support for child-care and maternity leave, women’s workforce participation rate in APEC declined steadily during the period 2008– 2018 and remains lower than men’s in all APEC economies. This may arise because of restrictions on women working in certain jobs or sectors.

The rate at which women have savings in a financial institution remains low, despite growing from 31.3 percent in 2011 to 33.9 percent in 2017. This is a problem because women’s financial inclusion is a necessary condition for inclusive growth.

Recruitment practices which seek information about family status and can be used to discriminate

against women persist in 19 APEC economies. Women may be discouraged to apply for work when pregnant or return to work after childbirth

because only 11 APEC economies guarantee an employee’s return to an equivalent position after maternity leave and only 10 economies mandate parental leave.

The full economic contribution of women may remain uncaptured and women may be discouraged

from work because only 8 APEC economies mandate equal pay for men and women doing work of equal value.

A range of human services policy outcomes including increased access of women to school and

tertiary education, vocational training, healthcare and personal safety protection in their workplaces, homes, and public spaces.

It is true that the labour force participation rate for men and women in APEC economies has declined between 1991 and 2018 due to population ageing, increasing affluence around the region, and economic restructuring resulting from technology and digitalisation. However, the labour force participation rate among women remains almost 20 percentage points lower than that of men and has not significantly narrowed. This indicates that women’s opportunities for economic participation have not significantly improved relative to men over the past three decades. Figure 4. Women’s labour force participation in APEC economies88

Source: PSU – APEC in charts 2019

88 PSU, APEC Regional Trends Analysis, November 2019

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Training and education Human capital development, particularly via skills training and education, is widely accepted as a key method to improve economic inclusion as well as labour productivity. However, education and training alone may not be sufficient conditions for economic inclusion if workforce barriers, like those discussed above, remain. Analysis by the International Labour organisation (ILO) suggests that89: Tertiary education can improve women’s workforce participation and reduce unemployment. In

some economies tertiary education can lead to a lower rate of unemployment for women than for men with similar education.

Even where women possess tertiary education their share of unemployment can be higher than for men with similar education in some economies. Discrimination in recruitment for jobs and the workplace as well as the supply and affordability of child-care can be contributing factors to this inequity as suggested by the PSU PPWE dashboard.

The figure below illustrates comparative unemployment rate for females and males aged 25-34 with tertiary education in some APEC economies. These economies have been selected because the ILO has available data in relation to them. The figure demonstrates the variability in women’s workforce participation regardless of education outcomes. Figure 5: Unemployment rate (%) of males and females aged 25-34 with tertiary education (latest year available)90

Source: ILOSTAT – Aegis Consulting Group analysis

89 https://ilostat.ilo.org/2020/03/11/i‐am‐generation‐equality‐ideals‐versus‐reality‐in‐asia‐and‐the‐pacifics‐labour‐markets/ 90 Aegis Consulting Group analysis based on ILO data. See https://ilostat.ilo.org/2020/03/11/i‐am‐generation‐equality‐ideals‐versus‐reality‐in‐asia‐and‐the‐pacifics‐labour‐markets/

16.4

7.9

6.1

6

4.9

3.6

3.6

3.5

3.5

2.2

1.7

1.6

9.6

10.4

7.7

6.2

3.3

3.9

2.7

2.2

4

2.5

1.6

2.1

0 2 4 6 8 10 12 14 16 18

BRUNEI DARRUSALAM

PHILIPPINES

REPUBLIC OF KOREA

INDONESIA

NEW ZEALAND

AUSTRALIA

MALAYSIA

VIETNAM

JAPAN

SINGAPORE

PAPUA NEW GUINEA

THAILAND

Male unemployment rate Female unemployment rate


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Rationale – youth, older workers, and people with disability Youth Like women, it is estimated that young people are extremely vulnerable to the economic and social impacts of the COVID-19 as they represent a high proportion of workers in the industries most affected by shut downs and their education and training is also severely disrupted by efforts to contain the pandemic. These impacts can exacerbate pre-existing inequalities facing young people such as91: Declining labour income share as a proportion of GDP which puts significant downward pressure

on wages for young people entering the workforce. Rises in consumer prices which reduces the capacity for young people on low wages to save capital

for asset accumulation. Higher asset prices which reduces the opportunities for young people on afford assets. The trade-off that young people, particularly in developing nations or low income households in

advanced economies, have to make between education and entering the workforce at an early age. Special attention will need to be paid in policy design to mitigate any long term impacts on the economic future of young people. This may include prioritising the recovery of industries employing young people, providing additional support for education and training especially for skills likely to experience future demand, and extending safety social nets to assist young people manage the gaps between income losses and living costs. Older workers For older people, the economic shock of COVID-19 can have multiple impacts, including reducing the financial value of their personal pensions and savings and/or forcing governments to limit their access to welfare because of general budgetary constraints. In general, populations are ageing across many economies. However, unlike any other time in history, older people have been able to extend their labour force participation as a result of the improvements that have led to longer life expectancy, the rise of less physically demanding work and new technologies. For example, in Australia between 1978-79 and 2013-14, the participation of people aged 55 to 64 increased from 45.6 per cent to 63.8 per cent92. At the same time as older workers are able to participate in the workforce and remain productive for longer, they are also more exposed to earlier redundancies and permanent unemployment because their skills and experience are less valued in an increasingly digitalised economy geared to younger workers. Long term unemployment for older workers may reduce their economic, financial, and social inclusion where their personal savings, government or employer subsidised pensions, and/or family support cannot sustain their economic security. Pressures on the economic security of older workers can increase where they cannot rely on publicly funded health care or affordable private health insurance. These issues raise potential costs for governments where older workers need to increasingly rely on welfare for their economic security. One way to avoid this is to create economic environments where older workers are appropriately valued for what their skills and experience bring to productivity. This economic contribution can occur via paid work, but also through unpaid work such as volunteering and

91 World Bank, Poverty and Distributional Impacts of COVID‐19: Potential Channels of Impact and Mitigating Policies, 16 April 2020 92 Australian Treasury, inter‐generational report, 2015

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mentoring services which older people can often provide to their local community organisations as part of their efforts to remain active and socially included. People with disability93 People with disability can face a range of barriers to economic, financial, and social inclusion including the limits on their capacities to work and discrimination they face when seeking and retaining employment. One clear way to promote equity is through laws which prevent discrimination in the workplace and provision of services. As is the case with most efforts to address discrimination, governments have a leading role to play in setting standards and being exemplars of practice. For example in many economies the civil or public service is often the first employer to develop strategies to actively recruit people with disability especially where governments set targets for government agencies. However, for people with disability to enjoy sustained benefits from economic inclusion organisations need to have the commitment and capacity to retain their employment and support their productivity including via the provision of tailored training programs which helps them gain transferrable skills in a market economy. Driving firm level responses, where appropriate, may be worth investigating as part of the COVID-19 economic recovery packages developed by economies. Doing so would be consistent with recommendation 2 in Topic 1. Rationale – Informal workers According to the OECD “the outbreak and spread of COVID-19 is having and will have a disproportionate impact on informal economy workers across the world, especially in developing countries, where they represent about 70% of the workforce”94. This is supported by PSU analysis95. The key reasons for this impact are varied and include the fact that by and large workers in the informal economy are potentially subject to the worst risks of the health crisis and economic crisis. For example informal workers96: Are in vulnerable employment because they do not enjoy regular income, rights at work, or social

protection benefits and are likely to be self-employed or contributing family workers. Lack basic health care and protection either because they cannot access adequate publicly funded

health care systems or cannot give up work to obtain healthcare. Need to earn a basic income and must work regardless of the dangers to their health associated with

the pandemic. May be migrant workers and lack documentation needed to obtain social protections and healthcare

in the economies in which they are employed. May be unable to manage social distancing and self-isolation given their communal and poor living

conditions.

93 Aegis Consulting Group analysis based on its experience advising the disability sector 94 OECD, Why protecting informal economy workers is so critical in time of COVID‐19, https://oecd‐development‐matters.org/2020/04/17/why‐protecting‐informal‐economy‐workers‐is‐so‐critical‐in‐time‐of‐covid‐19/ 95 PSU, APEC in the Epicentre of COVID‐19, Policy Brief No.31 April 2020 and PSU APEC Regional Trends Analysis May 2020 96 Ibid and PSU, APEC in charts 2019


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Figure 6: Trends in vulnerable employment in APEC97

Source: PSU – APEC in charts 2019 According to the PSU analysis vulnerable employment in APEC has been on a downward trend since 1991 for both men and women. However, women are still more likely than men to be in vulnerable employment. Additionally, women are three times more likely than men to be contributing family workers (i.e., likely to be paid in kind or not have a regular income). This means that there is a strong ongoing relationship between APEC initiatives to promote women’s economic inclusion and increase protections for informal workers. The OECD warns that “ignoring the specific needs of informal economy workers could fuel resentment and social tension, worsen poverty, and put social cohesion and food security at risk. Specific policy measures must urgently be taken, recognising the value of the contribution of informal economy workers to society”98. It recommends a suite of responses to avoid these risks including the following: Governments should extend social protection to informal economy workers. Efforts to achieve this

include combining the formalisation of enterprises with access to social protection; extending statutory coverage to previously uncovered workers; adapting benefits, contributions and administrative procedures to reflect the needs of informal workers; and subsidising contributions for those with very low incomes. According to its final RAASR reporting, Korea is one economy that has taken action to equalise the labour protections of workers in the formal and informal economy.

Governments and private sector employers should collaborate to improve occupational safety and health all along the value-chain. This is consistent with the firm level outcomes which the OECD and EBRD discussed elsewhere in this paper.

97 PSU, APEC in charts 2019 98 OECD, Why protecting informal economy workers is so critical in time of COVID‐19

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Governments should consider introducing legislation to deem informal workers as essential service providers in all parts of supply chains.

4.6 Process recommendations

Recommendation 9 - RAASR reporting to enhance comparative evaluation To deepen the comparison of economy actions and knowledge sharing the EC should consider: Prioritising the opportunity for economies to report on their initiatives to (a) improve the labour

income share (or equivalent measure) as part of a productivity and inclusion agenda; (b) extend access to quality education, training, and skills development; and (c) labour market regulation extending worker protections and flexibility.

Rationale Productivity as a whole is critical to sustained economic growth A key objective of economies is to increase overall productivity and specific productivity in targeted industry sectors. This is because there is little that determines standard of living more than the rate of productivity growth. As Nobel Laureate, Paul Krugman has stated, “productivity isn’t everything, but in the long run, it’s almost everything. An economy’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”99 Productivity performance is usually the main source of any economy’s long-term growth, business competitiveness, and real per capita income growth. There are essentially two ways of increasing the per capita income of an economy: By producing more per person. An economy can control this. By obtaining higher world prices for what it produces. An economy generally does not control this

as it is subject to international market forces. At various periods of time an economy’s ability to produce more per person may be masked by the rise in its terms of trade. When the terms of trade worsen, such as when there is a down-turn in commodity prices, the economy will need to improve its productivity if living standards are going to continue to grow. Not maintaining a focus on productivity can be costly. This has been highlighted by the former Chairman of Australia’s Productivity Commission, Gary Banks. He compared the projected rate of economy-wide labour productivity growth in Australia between 2002 and 2012. He noted that it fell from 1.75 to 1.6 per cent. He found that this 0.15 percentage point difference translated to a reduction in per capita GDP of nearly $7,000 per person by 2050100. Thus, reform that leads to even modest productivity gains is worth doing. The maximum level of output in an economy is referred to as an economy’s productive potential. Economies that are well below their productive potential can experience rapid and dramatic productivity growth by being exposed to international competition. This occurred for example when the Asian Tigers of Hong Kong, South Korea, Chinese Taipei, and Singapore experienced rapid growth between the 1960s and 1990s. Australia too, experienced strong productivity growth in the 1990s as a result of competition and trade reforms that created incentives for firms to reach their potential.

99 Krugman, Paul (1994), The Age of Diminished Expectations, MIT Press, Cambridge, 13 100 Banks, Gary (2012), “Advancing the Reform Agenda: Selected Speeches”, Productivity Commission, Melbourne, 7‐8


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Managing a successfully productive economy could be compared to operating a formula one racing car. Increased performance at the lower end can be made with blunt measures that are easily and relatively cheaply achieved. The difficult and expensive work is to produce the extra critical horsepower performance at the margins, where every increment can give a racing car a competitive advantage. Higher labour productivity but lower labour income share reduces inclusion Roughly speaking in an advanced economy, the share of GDP represented by labour compared to capital is around two-thirds. However, it would appear that since the 1970s there has been a decline in that share. That is to say capital income has been increasing as a share of GDP compared to labour income. For example, “in almost every OECD country wage shares have declined by several percentage points in favour of rising profit shares, even when real employee compensation has gone up”101. Relatively recent research has attributed that to the measurement of “intellectual property products” such as computer software and research and development expenditure.102 The OECD suggests that higher labour productivity has not translated to higher wages for low and middle income households in the aftermath of the global financial crisis. It reports that in fact income inequality is at a 30 year high in many economies. Across the OECD the average disposable income of the richest 10 percent of the population is around ten times that of the poorest 10 percent, up from seven times since the mid-1980s. The inequities of this for wealth creation are exacerbated by disparities in asset ownership. Across the OECD the richest 10 percent in wealth terms own around 50 percent of all household assets, while the bottom 40 percent own barely percent 103. When there is a decoupling of productivity and wages the labour income share declines. This can impede productivity because workers are less motivated to generate outputs and businesses seek returns by investing in non-productive parts of the economy. The International Labour Organisation (ILO) has noted the labour income share is a key inequality measure. It has plotted the share of total income benefiting workers and the following graph shows that it is declining globally.

101 Marianna Mazzucuto, The value of everything: making and taking in the global economy, Allen Lane, 2018, p129 102 Dongya Koh, Raul Santaeulalia‐Llopsis, and Yu Zheng, Labor Share Decline and Intellectual Property Products Capital, working paper, Washington University of St Louis, February 2016 103 OCED, Opportunities for all: OECD Framework for policy action for inclusive growth, Policy Brief May 2018, and Aegis Consulting Group analysis

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Figure 7: Global movement of labour income share of GDP 2004-2017104

Source: ILOSTAT The ILO notes that: “The global labour income share has declined substantially between 2004 and 2017. In parallel, the share of income earned by capital owners has been on the rise. This has important consequences, as capital income tends to favour the well-off. Using the first-ever internationally comparable dataset on countries’ labour shares, we can analyse its global evolution. During the 2008-2009 financial crisis, the labour share jumped upwards. This does not imply that wages and labour income increased. Instead, profits – a form of capital income – dropped faster than labour income. After this temporary blip, the labour income share declined far below the pre-crisis levels. As a consequence, in 2017, the share of GDP earned by labour was 51.4%.” 105 The ILO has also noted that: “The global adjusted labour income share is in a downward trend since 2004, which means that the share of national output used to remunerate labour (as opposed to other factors of production) is declining. This decrease was temporarily reversed during the global financial crisis of 2008-2009, due to the sudden contraction in GDP”.106 This is illustrated in the figure below.

104 International Labour Organization, “The declining labour income share”, ILOSTAT Blog, 4 July 2019 105 International Labour Organization, “The declining labour income share”, ILOSTAT Blog, 4 July 2019 106 International Labour Organization, “Decent work and the SDGs – 11 charts that tell a story”, ILOSTAT Blog, 23 October 2019


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Figure 8: Global change in income share of GDP for selected regions 2004-2017107

The ILO went on to say that: “Central Asia and Southern Asia and Northern America and Europe are the main drivers of the global decline in the labour share. Indeed, the adjusted labour share of GDP lost over five percentage points in Central Asia and Southern Asia, and close to two percentage points in Northern America and Europe. Conversely, in Latin America and the Caribbean, the labour income share increased by just over two percentage points during the same period. Similarly, it rose by one percentage point in Sub-Saharan Africa and by half a percentage point in Western Asia and Northern Africa. It is however important to highlight that in data availability is scarce in general for African and Asia.”108 The impacts of COVID-19 on employment are likely to exacerbate wealth creation inequalities and further reduce the labour income share of GDP. It is therefore important for economies to collectively focus on this more explicitly and share experiences and knowledge in dealing with it. One way is embed the need for this to be addressed, and not worsened, through structural reform. Human capital development and labour market reform are essential for higher labour productivity As the IMF has observed a more equitable distribution of income has the potential to assist in human capital development and therefore lead to higher labour productivity.109

107 Ibid 108 ibid 109 Kristalina Georgieva, “The Next Phase of the Crisis: Further Action Needed for a Resilient Recovery”, IMF Blog, 16 July 2020

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Productivity growth rates in many countries declined in the 1970s and 1980s when economies were increasingly overburdened with regulations and protective measures. During competition reforms of the 1990s this was reversed with, in many cases, large increases in productivity. To some degree, it is believed, these rates were also boosted by the revolution in information technology. However, in more recent years growth rates have declined and are relatively slow. This is despite the ongoing technological developments. Some analysts have conjectured that a lot of the latest innovation has been in the consumer products area such as smart phones and entertainment products, rather than in business oriented areas that would lead to greater labour productivity. In many economies, including high income ones like the US and Australia, in recent years the real wages of highly skilled workers have continued to rise while the real wages of less skilled workers have in many cases declined or at least stagnated. This has been blamed on globalisation and on technological change. Income and wealth creation inequalities combine to compound the economic disadvantages of poorer households and groups with limited access to economic opportunities. This manifests in terms of less access to any or high quality education and training and the concentration of these households in casual informal employment which lacks the security conditions and benefits people rely on for social mobility. For example, children whose parents did not complete secondary school have only a 15 percent chance of making it to university, compared to a 60 percent chance for children who have at least one parent with a university education. Failures to address these issues leads to intergenerational disadvantage and entrenched social and economic problems that become harder to solve the longer they persist. where globalisation and digitalisation creates new competition and disruption effects, these inequalities are likely to be exacerbated in the absence of direct policies and programs to avoid and resolve them.

The key solutions to address these issues, as demonstrated by some economies RAASR reports, are: Labour market regulation which balances the need for business to grow and invest and the need to

protect the vulnerable in society, including ensuring a level playing field between MSMEs and big business.

Boost the education, skills training, and life-long learning opportunities, particularly for the less skilled, and provide transitional government support for people undertaking education and training.

A strong vocational education and training (VET) system is vital to labour productivity. Key issues to enable this include the following: Significant and structured input from key stakeholders like employers and trade unions (or other

employee groups) on the nature of courses is generally required to ensure that training courses are optimised for productivity growth.

VET should be strongly integrated with secondary schools’ curriculum, including pathways for secondary school students to finish their schooling via the VET system.

VET should not be considered a secondary preference to university education. At the same time VET courses should be a pathway for university education.

World Bank analysis has been valuable in identifying the types of polices needed in the area of labour market regulation and training and skills development. In a report on Mexico they have recommended that policy options include: 110

110 World Bank, Labor Markets for Inclusive growth, Mexico Policy Note 4, 2012, p1.


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Promote labor market productivity and job creation by reducing labor market rigidity and increasing the relative benefits of formalisation.

Create a more productive labor force by raising the level and labor market relevance of skills through a national skills strategy that recognizes labor-market skills acquisition throughout the life-cycle, continued reorientation of upper-secondary school toward the labor market, and portability of skills across the education, training, and labor market systems.

Improving allocative efficiency, and thus productivity, of the labor force by facilitating job search

and matching through integrated employment services, including unemployment insurance, and strengthening competency-based certification.

In addition, the World Bank has proposed a largely generic list of policy priorities to support labour market regulation, education, and training. These are discussed in detail at Appendix 6. The EC could consider using these policy priorities to develop guidelines for economies to plan, design, target, implement and manage best practice human capital development and labour market reforms as part of a structural reform agenda. As a final comment, it is noted that labour income share is not necessarily directly proportional to workers’ incomes- for example, higher wage shares do not necessarily translate into higher wages for workers. Wage shares are affected by many complex factors ranging from the sectoral composition of the economy and trade openness, to market structure and labour market regulations. In that regard, it could be considered that an alternative metric to ‘labour income share’ such as purchasing power parity-adjusted wage levels could be used.

Recommendation 10 - guidelines for structural reform design To enhance the capacity of economies to consistently apply structural reform to build economic resilience and address inequity, the EC should consider developing guidelines: That economies can use to target government support for MSMEs for the purposes of boosting

productivity. In developing these guidelines, the EC should draw on the RAASR reporting by economies and the existing research on digitalisation.

For economies to plan, design, target, implement and manage best practice human capital development and labour market reforms as part of a structural reform agenda

Rationale Maintaining sustainable productivity growth relies on boosting private sector participation in the economy. Within this core focus should be increasing the participation by MSMEs because a large amount of innovation comes from highly motivated small businesses who want to become big businesses. Research and development are generally funded by big business, and that will not change irrespective of what government does. However, helping small business is something that governments can facilitate through policy and regulation. Assistance can be in the form of government subsidies or loans for MSMEs nor government loans. However, this can distort markets and make MSME’s less competitive in the long term. On the other hand, decreasing red tape and unnecessary regulations on MSME’s allows them to innovate and grow and therefore can be of greatest assistance to boost productivity. Directing support for MSMEs which increases their ability to utilise and participate in the digital economy can have exponential benefits for their productivity, including the labour productivity of their employees.

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Research done by OECD across economies at firm and industry level showed that digitalisation increases labour productivity and promotes economic growth. This is despite wide variations in productivity gains across firms flowing from digitalisation111. Given this connection the OECD believes that governments should enhance business and consumer access to digital technology and applications, including to increase commercial opportunities for business. This can include lowering barriers to entry via facilitating cross-border e-commerce and participation in global value chains and enabling MSMEs to go global.112 One of the barriers to MSMEs capacity to participate in global markets is their ability to invest in digital technology, infrastructure, and skills. Often their small scale can create barriers to this investment and underinvestment can impede their productivity growth. OECD finds that MSMEs trail lager firms in technology adaptation because they: “face a range of barriers in adopting ICTs and other digital technologies in their operational activities. SMEs tend to have limited financial resources, which makes adopting new technologies, including ICTs, difficult given these tools are often expensive. Another important barrier is related to human and organisational capital since investments in new technologies often require investments in complementary knowledge-based assets. SMEs do not often have the skilled people to operate new digital technologies in their teams, the resources to train these workers, or have the management that can help them make the most of the new technologies”.113 One of the key benefits of the digital economy is that it provides MSMEs with the opportunity to flexibly reach global markets without needing to invest significantly in digital technology normally required to do so. As noted by the OECD, MSMEs in economies that are more geographically isolated from trading partners are more reliant on e-commerce, and in these cases the productivity dividend offered by digital platforms is likely to be higher than the average114. The opportunity for this productivity dividend arises because the digital economy provides MSMEs with115: The capacity to reach international consumers including the ability to target consumer markets,

which MSMEs could not achieve on their own. Research and the analysis of data about consumer spending, preferences, behaviour and other

information which enables MSMEs to plan and execute their business objectives with certainty. This kind of data analytics is not something MSMEs could obtain on their own without considerable investment in market research and technologies to capture consumer data.

Administrative support which lowers the cost of transactions, including for example, access to

consumer market information which reduces the costs of decisions; decreasing the need for contracts between buyers and sellers thereby reducing bargaining costs; lower regulatory costs because the third-party marketplace provides business assurance; and providing secure forms of payment.

111 OECD, Key issues for digital transformation in the G20, Report prepared for a joint G20 German Presidency/ OECD conference, Berlin, 12 January 2017, p13 112 OECD 2017, p36 113 OECD 2017, p116 114 OECD 2017, 24 115 Deloitte Access Economics, Platforms, small business and the agile economy 2017 and Aegis Consulting Group analysis


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A digital shopfront and related infrastructure which buyers and sellers can rely on. This includes for example, the capacity to disqualify sellers for poor performance; verification of the authenticity of sellers and buyers prior to use; and insurance covering buyers and sellers for any damage incurred while using online marketplaces.

These productivity benefits have more opportunity to be captured when MSMEs are able to receive the appropriate support for firms providing digital, internet and e-commerce services and tools such as consumer analytics, purchasing process security, business assurance and information system connectivity.

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CASE STUDY 3: CHINESE TAIPEI’S REFORMS TO IMPROVE THE LABOUR PRODUCTIVITY OF WOMEN

1. Overview116

In the past, there was a big gender gap in decision-making and leadership in Chinese Taipei. For example, the proportion of female cabinet members never exceeded 15% before 2000 and the proportion of female legislators accounted for only 20.9% in 2004. Since the Constitution was amended in 2005, Chinese Taipei has been strengthening its gender-equality promotion efforts in all aspects of the society. One of the key strategies is to enhance women’s participation and leadership in all levels of decision-making. Chinese Taipei took a series of structure reform to increase female representation in both the public and private sectors with an expectation of forging a more inclusive and gender-friendly society, and the results have been tremendous. This case study provides an introduction to Chinese Taipei’s promotion of women in decision-making and leadership in public and private sectors, with approaches including regulatory reform to enhance women’s economic and political participation, education measures for breaking social norms, and entrepreneurship measures for promoting women’s leadership in business.

2. Objectives of reform To enhance women’s participation in all levels of decision-making and leadership, the following issues have been identified: (1) Lack of fundamental regulatory reform to improve women’s economic and political participation (2) Lack of policy guidelines for overall gender-equality promotion (3) Gender awareness to be strengthened in education and career building (4) Lack of relevant statistics and information to monitor progress

3. Alignment with government priorities

In 2011, the “Gender Equality Policy Guidelines” was promulgated as the overall guiding principles for addressing various gender-equality issues. And in 2012, the Department of Gender Equality (DoGE), a designated cabinet-level department for gender equality, was established so as to coordinate cross-ministerial initiatives and supervise the implementation of gender mainstreaming measures while incorporating gender perspective in all aspects of policy formulation, including women’s participation in decision-making.

4. Reform planning and design

The DoGE is responsible for planning the key areas of the overall reform, while the gender-equality issues are connected to various policy areas. Over the years, relevant regulatory reforms and policy have been implemented for forging gender-friendly workplaces, supporting women with family care facilities, developing women’s capabilities and skills, as well as ensuring women’s participation in decision-making.

116 This case study has been provided entirely by Chinese Taipei without any editing by the consultants


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5. Reform implementation

Solutions used to address barriers Implementing structural reforms The Constitution was amended in 2005, which stipulates the number of elected female legislators-

at-large shall not be less than one-half of the total number. In 2007, the “Civil Servants Election and Recall Act” was formulated, stipulating that all political parties are required to nominate female for no less than 50% of total legislators-at-large.

In 2010, the “Local Government Act” stipulated that if the number of special municipal councilors, county (city) councilors, and township (city) representatives elected by each electoral district reaches four persons, there should be one female seat among the four elected; if there are more than four elected, every additional four persons elected shall include one female.

The “Gender Equality Policy Guidelines” was announced in 2011 and the “Enforcement Act of Convention on the Elimination of All Forms of Discrimination against Women” was put into effect in 2012.

The government continues to promote the one-third gender rule, requiring not less than one-third of the total number of seats for women in the decision-making level of such entities as members of the Cabinet and the committees of government agencies, and directors of the board and supervisors in the government-owned enterprises and government-funded organizations.

“Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies” has required that the composition of the board of directors of publicly-listed companies, gender should be considered as one of the diversity issues. Gender information of the directors should also be disclosed in annual report along with its gender diversity policy, if any.

Promoting gender awareness for breaking gender stereotypes Promoting Gender Equity Education : the “Gender Equity Education Act” has been formulated in

order to soundly establish education resources, nurture gender awareness and environments that epitomize gender equality. Students in elementary and junior high schools are provided with mandatory gender equality courses at least 4 hours each semester.

Encouraging women and girl’s participation in STEM: We have been encouraging girls to study in STEM disciplinary to break gender stereotypes in education and hope to narrow digital gender gap and gender wage gap in the future.

Promoting gender-friendly workplace and women’s entrepreneurship The “Act of Gender Equality in Employment” was enacted in 2002 and there has been continuous

review to ensure gender-friendly workplace, prevent sexual harassment, introduce family-friendly leaves and enforce prohibition of gender discrimination against job application, performance evaluation and career promotion.

Chinese Taipei encourages female to establish their own businesses by providing access to loans, consultation and launching several women’s entrepreneurship programs, such as “Phoenix Micro Start-up Program” and “Women Entrepreneurship Program” to relieve the financial burden and provide a complete package of consulting mechanisms to female entrepreneurs.

Implementing policy incentives The DoGE holds “Golden Carnation Awards” annually to evaluate central and local governments’

efforts into gender equality and encourage them to take innovative and efficient measures on gender equality. To encourage private sector to take measures on increasing women representation in decision-making, Chinese Taipei holds the “Work-Life Balance Award” for creating gender-friendly workplaces and the “Women Entrepreneurship Award” for promoting female entrepreneurship.

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Strategies to monitor and evaluate reform Collecting gender-aggregated statistics To further identify the gender gap and conduct policy evaluation, the government continuously

collects and compiles various gender-aggregated statistics and has published the gender statistical annual report since 2007. Key indicators in the “Power, decision-making and influence” category are applied as the policy target and progress of the policy achievement.

Review of the CEDAW National Report Chinese Taipei holds the review meeting for the Convention on the Elimination of All Forms of

Discrimination against Women (CEDAW) national report every four years to obtain recommendations from domestic and international experts on gender policy and measures to advance our policy.

6. Results of reform According to the United Nations Development Programme (UNDP)’s Gender Inequality Index (GII) Report and adapting its calculating method, Chinese Taipei ranked 9th in the world and 1st in Asia for gender equality performance in 2018. Also, targeted data have shown that women’s representation in economic and political leadership has achieved substantial achievements, as below: In the public sector The proportion of female legislators: in 2020, women accounted for 41.2% of legislators, hitting

a record high, an increase of 10.8% compared to 2008. The proportion of female special municipal councilors: in 2018, women accounted for 35.8%

of special municipal councilors, an increase of 1.7% compared to 2010. The proportion of female justices: in 2018, 26.7% of justices are female, number doubled 10

years ago. The proportion of female senior rank civil servants: women senior rank civil servants have

increased over the past decade, from 22.8% in 2008 to 34.6% in 2018. The proportion of female committee members of administrative agencies: there were 86.65%

of the committees of administrative agencies with proportion of female committee members not less than one-third in 2019.

In the private sector The proportion of women in charge of SMEs: in 2018, 36.8% of the total SMEs were with

women legal representatives, an increase of more than 10% compared to 2012. The proportion of female directors of publicly-listed companies: in 2018, there were 2,327

women directors of publicly-listed companies, accounting for 13.7% of the total, an increase of 1.9% compared to 2013.

Women at decision-making level in labor union: the proportion of women directors and supervisors of labor unions increased from 25.9% in 2012 to 31.4% in 2017.


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CASE STUDY 4: BRUNEI DARUSSALAM’S POLICIES TO PROMOTE SUSTAINABLE GROWTH

1. Overview117 In its report to the final RAASR review, Brunei Darussalam indicated that it has pursued two priority reforms in 2016-20 under pillar 3. In the view of the consultants these two priorities are good examples of social policies which are integrated with a productivity and inclusion agenda and therefore represent a holistic approach to achieving sustainable growth.

2. The priorities for sustainable growth under pillar 3 Increasing the national productivity Brunei Darussalam proposed restructuring and reorganization of its Law and Welfare Division to optimise human resource allocation and efficiency. To date, it has identified and established three units to handle the daily tasks of the division, namely: legal unit, welfare unit, and support services unit. In relation to the above, Brunei Darussalam also proposed reforms to improve key performance indicators (KPI) of the Division. Five initiatives have been implemented, namely: 1) implementation of work process manual; 2) job description & competency framework; 3) standard operating procedures (SOP) governing the review of persons of unsound mind; 4) reactivation of the Jawatankuasa Penelitian Semula Undang-Undang (Law Review Committee); and 5) more efficient and effective process in the provision of housing assistance to the poor and destitute. The reform has increased workforce productivity and improved accountability, which is in line with the Prime Minister’s Office strategic plan. Lower unemployment rate and create industry-ready manpower Brunei Darussalam established the Manpower Planning Council (MPC) in April 2016 to drive development and planning of the local workforce and therefore, build a pipeline of skilled Bruneians. As of November 2019, the MPC has been transformed to the Manpower and Employment Council (MPEC), with an expanded work scope of looking at employability and gainful long-term employment. The MPEC has identified nine root causes which may contribute to unemployment and used them to identify pillars and related areas where their efforts would be focused on. Under the supply pillar, the three focus areas are: 1) provide highly skilled human capital needed by industries; 2) develop resilient workforce with industry ready mindset and work ethics; and 3) upgrading skills and competencies (upskilling & reskilling). Under the demand pillar, the three focus areas are: 1) review and develop labour policies and processes; 2) engagement and collaboration with industries; and 3) economic growth. Under the enabler pillar, the three focus areas are: 1) one stop career centre (i.e., JobCentre Brunei); 2) synchronized and centralized database; and 3) process and physical infrastructure. Brunei Darussalam has identified 31 key deliverables under these focus areas.

117 This case study has been taken from the PSU’s final RRASR Review without editing by the consultants

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It noted that total employment has increased by 6 percent between 2014 and 2018, and this has been contributed mainly by increase in the number of employment in the private sector. Additionally, gender gap ratio in employment has narrowed in the past years. In terms of unemployment rate, Brunei Darussalam has managed to reduce it from 9.3 percent in 2017 to 8.7 percent in 2018. JobCentre Brunei (JCB) was established in January 2017 to be a ‘One Stop Career Centre’, enabling jobseekers to utilize available services to help improve their employability and marketability in the job market. The requirement for mandatory registration to the system has enabled all available vacancies in the private sector to be centralized and real-time data on job seekers to be gathered. . The number of registered companies and jobseekers on the portal increased from 397 and 4,957, respectively in August 2016 to 14,334 and 41,541 respectively as of 30 January 2020. The total number of locals recruited via JCB was 3,350 between 1st January 2019 and 30th January 2020. . JCB is currently undergoing enhancements so as to improve the overall robustness of the talent pool in the system and therefore, more efficient job-matching. Brunei Darussalam has introduced an initiative which is aimed at providing a better understanding of the current and future manpower demand of various sectors. To realize this, the MPEC Secretariat had engaged with different agencies and organizations such as the Department of Economic Planning and Statistics, Brunei Economic Development Board (BEDB), Darussalam Assets (DA) and FDI companies. It also obtained preliminary data on manpower composition from FDI Action and Support Centre (FAST) and DA to identify sustainable job opportunities for the working age population and further develop the workforce in focused industries. The Manpower Industry Steering Committee (MISC) has identified five priority industries in the next five years, namely: 1) hospitality and tourism; 2) information and communication technology; 3) marine; 4) energy; and 5) construction. The relevant stakeholders would be collecting first-hand information on the updated skills required by respective industries. The MISC is also developing the National Competency Framework, which is in alignment with the Ministry of Education’s National Skills Accreditation Framework. To ensure Technical and Vocational Education and Training (TVET) alignment, the MPEC has been collaborating with several agencies such as the Ministry of Education, Ministry of Culture, Youth and Sports as well as industries and MISC leads. In September 2016, the 1st Opportunity Framing Workshop (OFW) was organized to: 1) review the functions of the Institute of Brunei Technical Education (IBTE) in supporting the Industry Competency Framework (ICF); identify relevant stakeholders to provide IBTE with possible collaboration opportunities and industry network expansion; and 3) identify actionable items for the identified industry clusters. Various technical and vocational institutions such as the Centre for Capacity Building (Pusat Pembangunan Kapasiti), Youth Development Centre (Pusat Pembangunan Belia), and IBTE have been visited to understand the courses offered and facilities provided to the students. The Higher Education Division of the Ministry of Education has produced the first draft of the TVET baseline report in 2019 to inform on the challenges associated with quality of TVET and ensure that training programmes offered by providers can be matched with manpower needs of the economy. To date, 38 out of 53 IBTE courses have been aligned.

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5. APPENDICES

Appendix 1

Assessment framework for priorities in the 2021-25 agenda The figures below illustrate the consultant’s approach to the identification of priorities for the 2021-25 agenda.

Have the core structural reforms undertaken by economies been intended to generally achieve the following outcomes: More open, well- functioning, transparent and competitive markets (RAASR pillar 1). Deeper participation in those markets by all segments of society, including MSMEs, women, youth, older workers,

and people with disabilities (RAASR pillar 2). Sustainable social policies that promote the other outcomes, enhance economic resilience and are well-targeted,

effective, and non-discriminatory (RAASR pillar 3).

Have the reforms: Been designed to achieve explicit inclusion,

labour productivity, or sustainable growth outcomes?

Included measurement of outcomes? Demonstrated common themes? Represented a solid basis to deal with

economic shocks like COVID-19?

YES

Have the reforms been designed to achieve any other outcomes?

Are there any barriers that economies face in pursuing these reforms?

What additional guidance do economies require to pursue reforms?

How should reforms be designed to respond to the impact of COVID-19?

NO

YES/NO

Have economies needed to implement any other complementary social policies to? Overcome or avoid the dislocating or

disruptive impacts of structural reforms. Further enable the economic inclusion of

vulnerable groups.

What are the lessons for the 2021-25 structural reform agenda?

YES/NO

What are the lessons for the 2021-25 structural reform agenda?

Recommendations for the 2021-25 structural reform agenda.

YES/NO

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Appendix 2

Work by the EC to progress the 2016-20 RAASR Endorsed the mid-term RAASR review prepared by PSU in 2018. That review: Assessed APEC‐wide progress on structural reforms against agreed 17 quantitative (external)

indicators, and progress of individual economies in implementing structural reforms. Concluded that economies performed well in enhancing innovation and productivity and should

continue to strengthen these areas. Recommended that economies redouble efforts to improve business regulations and facilitate

business conduct and increase efforts to boost the competitiveness of labour and financial markets, improve access to basic services and infrastructure and enhance fiscal and social policies.

Recommended that economies do more to ensure that all segments of society participate in markets, particularly by addressing youth employment.

Identified priorities and gaps in structural reform for possible further attention between 2018-20. The EC supported High‐Level Structural Reform Officials’ Meeting in 2018 informally proposed that the work of the EC be guided by the following priorities and gaps. Progress on addressing these priorities and gaps is described in the table below.

Progress towards addressing identified structural reform priorities and gaps

Priorities and gaps identified by High‐Level Structural Reform Officials118

Status of work to pursue priorities and address gaps119

1 Consider additional quantitative indicators, including indicators that are relevant to the digital economy, to the existing agreed list of 10 external quantitative baseline indicators for the monitoring of the RAASR.

PSU identified 3 additional quantitative indicators to be added to the original list of agreed indicators. They were subsequently agreed by EC in 2019. The 3 indicators are: 1) OECD PISA Indicators on Reading, Mathematics and Science; 2) ITU Indicators on Access to ICT Infrastructure; and 3) World Bank Global Findex Indicators on Share of Population Making and Receiving Digital Payments in the last year (15+).

2 Quantitative indicators for the digital economy, to be developed by the EC Informal Roadmap Group (IRG).

Ongoing work. Various initiatives on digital economy measurement completed (Australian workshop in March 2019, creation of Informal Roadmap Group) but no specific indicators identified yet.

3 A workshop in 2019 on best practices for performance measurement with regard to the RAASR, and informal ad hoc consultations between individual economies and PSU on measurements and indicators with respect to the RAASR.

Not yet completed.

118 Third Senior Officials’ Meeting, Port Moresby, Papua New Guinea 19‐20, August 2018 – High Level structural reform official’s meeting: 10 structural reform priorities and gaps to fill 119 Advice on progress has been provided by the RAASR Action Team and PSU

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Priorities and gaps identified by High‐Level Structural Reform Officials118

Status of work to pursue priorities and address gaps119

4 A policy dialogue in 2019 based on case studies of successes and failures in implementing structural reform under Pillars 2 and 3 of the RAASR.

Some consideration of implementing pillars 2 and 3 were included in the paper on structural reform for inclusive growth prepared by New Zealand and considered within EC2 of 2019. See item 8.

5 A paper on regulation for the digital economy, to be co‐produced by CPLG and RR FOTCs, to feed into 2019 AEPR on Structural Reform and the Digital Economy.

A specific paper has not been prepared but inputs relevant to FotCs were included in part 2 of the 2019 AEPR.

6 For EC to continue the implementation of the SELI Online Dispute Resolution Workplan.

A pilot project is underway.

7 Joint implementation with SFOM on recommendations of 2018 AEPR on Structural Reform and Infrastructure, using remote participation as appropriate

Completed.

8 Policy dialogue on structural reform and inclusive growth in 2019 with the view of contributing to post‐2020 agenda and supporting the implementation of the Action Agenda on Advancing Economic, Financial and Social Inclusion in the APEC Region.

Completed via the paper prepared by New Zealand and considered and agreed in EC2 of 2019.

9 Workshop on structural barriers inhibiting women from participating in the work force.

Workshops on structural reform and gender were hosted by New Zealand in September 2018 and United States in August 2019.

10 Workshop on structural barriers to MSMEs’ full participation in the digital economy, including those in remote areas and women‐led and indigenous‐run MSMEs.

Not yet completed.

Prepared four Annual Economic Policy Reports (AEPRs) covering structural reform for

digital economy, infrastructure, human capital development and services. These reports provide economies with an opportunity to share their experiences and lessons via case studies and include recommendations to build and enable the capacities of all economies to design and implement reforms that are fit for purpose within domestic environments.

Participated in a range of policy dialogues to facilitate collaboration across APEC fora and support the implementation of recommendations in the AEPRs. For example. The EC held a Joint Policy Dialogue with the Human Resources Development Working Group

(HRDWG) to discuss follow‐up from the recommendations of the 2017 AEPR on Structural Reform and Human Capital Development. The dialogue reflected the growing desire to work collaboratively in the area of structural reforms in human capital development and produced a number of ideas in the areas of Structural Reform and the Future of Work in the Asia Pacific Region, Education and Training for the Digital Age, and Active Labor Market Policies and Social Protection. The EC and the HRDWG established 2017 AEPR “post‐Core Team”, which will track progress on implementation of the AEPR recommendations and report to the EC and HRDWG in 2019 and 2021. The team will be responsible for flagging the relevance of the themes and recommendations of the 2017 AEPR for APEC Committees, specific APEC projects and high‐level initiatives promoted by host economies. It will seek to continue the discussion between the EC and the HRDWG on ideas at the intersection of structural reform and human capital development, including the recommendations of the 2017 AEPR and the ideas that emerged from the Joint EC‐HRDWG Policy Dialogue.

The EC created an Informal Roadmap Group (IRG) consisting of 12 economies to guide the EC’s work to support the APEC Internet and Digital Economy Roadmap (AIDER). The IRG identified the following focus areas of the AIDER where the EC could make a significant

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contribution - development of holistic government policy frameworks for the Internet and Digital Economy; promoting coherence and cooperation of regulatory approaches affecting the Internet and Digital Economy; and enhancing digital economy inclusiveness. The IRG also recommended that the EC take the lead in APEC’s efforts with regards to measurement of the digital economy.

Member economies hosted a range of policy discussions, workshops, seminars, and conferences on various issues to support the implementation of recommendations in the AEPRs. This included for example discussions regional economic trends; ease of doing business stocktake; open government; public e‐services; online dispute resolution; structural reform and infrastructure; public consultation initiatives; and structural reform and gender.

The EC held a conference on good regulatory practices (GRP) which focused on regulatory reform in the digital age, including exploring the role of digital technologies in supporting policy and regulation making, regulatory transparency and stakeholder engagement, and exploring how economies can work together to ensure that regulatory frameworks account for a more digitalized world and support emerging companies and innovation in the digital economy. Economies discussed recent successes in international regulatory cooperation; ways to implement GRP, particularly the adoption of regulatory impact analyses to promote evidence‐based regulations; and the use of GRP for inclusion.

Sponsored various projects in conjunction with the Corporate Law and Governance, Ease of Doing Business, Public Sector Governance, Regulatory Reform, Strengthening Economic Legal Infrastructure, and Competition Policy and Law Groups to increase and share knowledge. These projects included, for example, a review of potentially anti‐competitive laws and regulations in the Philippines; promoting competition assessment for improved market efficiency in Viet Nam; competition policy for regulating online platforms in the APEC region; and leveraging digital technology to improve education quality in rural and remote areas.

Contributed to the implementation of non-EC led APEC initiatives. For example, the EC: Contributed to the APEC Strategy for Strengthening Quality Growth (ASSQG) through the

structural reform agenda which encourages actions consistent with the ASSQG’s three key accountability areas, particularly institution building and social cohesion.

Produced a paper “Structural Reforms for Inclusive Growth: Three Approaches”, which suggests approaches that economies might take to better harness structural reforms to promote inclusive growth. This paper contributed to the APEC Action Agenda on Advancing Economic, Financial and Social Inclusion and represents the EC’s policy framework for structural reform for inclusion.

As discussed above held a number of policy discussions to support the APEC Internet and Digital Economy Roadmap (AIDER). It also dedicated the 2019 AEPR to Structural Reform and the Digital Economy.

Provided inputs into the Boracay Action Agenda (BAA) stocktake. Supported the institutional connectivity objectives of the Connectivity Blueprint via its work

on good regulatory practices, international regulatory cooperation, EoDB and the 2018 AEPR on Structural Reform and Infrastructure.

Supported the APEC Services Competitiveness Roadmap (ASCR) via its various policy dialogues and projects on competition policy and the 2016 AEPR which was dedicated structural reform and services. Recommendations in that AEPR include structural reform actions that could be implemented in conjunction with other APEC bodies.

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Appendix 3

Themes arising from analysis of 2016-20 RAASR implementation

1. Overview The analysis in this section is based on the final RAASR reports of nine economies provided to the consultants in May 2020, before the PSU’s final RAASR review was available in August. As agreed with the RAASR Action Team during the scoping of this paper, the consultants have not been required to review all economy RAASR reports as that is the task of the PSU’s final RAASR review. The timeframe for the delivery of this paper has not permitted any further review of other economy reports. The purpose of this section is simply to draw some common themes from the implementation of the 2016-20 RAASR relevant to the development of a future agenda and provide some examples of economy actions representing those themes.

2. Reforms to achieve RAASR pillar 1 Pillar 1 seeks “more open, well- functioning, transparent and competitive markets”. Competition policy Many economies have established legal regimes to manage anti-competitive conduct that reduces business and consumer welfare. Beyond a competition law regime, economies can use other structural policies to promote the fairness, openness, and competitiveness of markets to facilitate equity. Examples of actions by economies in 2016-20 include the following. Competition law regimes Chinese Taipei has streamlined thresholds and information for merger control to ensure its competitive law regime is consistent with international developments in competition regulation and fit for purpose in an environment of rapid economic change. Viet Nam has reformed the legal frameworks governing its State Owned Enterprises (SOEs) in order to promote competitive neutrality and improve management transparency. This has included mandating the requirement of SOE’s to consult with the private sector in the delivery of services. Tax system reform

Tax system reform can encourage domestic and inbound investment, improve domestic confidence in system fairness, support social mobility by families and enable governments to allocate additional public investment in infrastructure, education and training, health and other outcomes needed for inclusive growth. Canada has sought to improve the reliability and integrity of its taxation system by (1) allocating additional resources to bolster the capacity of its tax authorities to combat tax evasion and tax avoidance and (2) committing to implement certain recommendations of the G20/OECD Base Erosion and Profit Shifting (BEPS) Project including applying revised international guidance on transfer pricing. Improvements to financial services resilience and reliability Access to reliable banking, insurance, financial advisory, and wealth creation services have traditionally underpinned economic activity and social mobility. As digitalisation expands inclusive growth will

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increasingly rely on equitable business and consumer assess to mobile payment systems, money systems, credit models and other opportunities which blend financial and technology services. Canada has undertaken legislative reforms to improve the capacity of its financial services sector to participate in the emergence of fintechs, and the increasing demand for infrastructure investment by life and health insurance companies. It is also seeking to reduce information asymmetry experienced by consumers by exploring options for open banking, a data sharing mechanism that enables consumers to securely use and transfer their financial data. Some economies consider that the competitiveness of their financial services sector is linked to the environmental, social, and governance (ESG) policies, practices, and goals adopted by entities that offer instruments in financial markets. Chile’s Financial Market Commission (CMF) has commenced a regulatory assessment process for a proposal requiring entities to publish more transparent information about their ESG commitments and practices to enable investors to evaluate and select those financial products that best meet their investment criteria. Support for innovation and entrepreneurialism Innovative economies tend to remain competitive in changing global environments and this is increasingly true as the digital revolution takes hold. Korea has implemented innovation strategies for service industries which include ensuring that regulations promote innovation and directing public and private investment to support creation. It has also dedicated innovation plans for four key industries – tourism, healthcare, logistics and content. Canada has taken a holistic approach to ensuring that regulatory and investment signals promote innovation and research and development. On the regulatory front it has removed the income threshold for accessing research and development tax credits and streamlined regulatory requirements for innovation programs in high growth sectors such as agri-food and aquaculture, health, and biosciences. It has also introduced ‘Regulatory Roadmaps’ to address impediments to innovation in these sectors. Another way that economies can promote innovation is through the creation of relevant institutions to host, obtain and develop open source knowledge for use by business. Chile has increased collaboration between its Ministries of Science, Technology, Knowledge, Innovation, and Economy to facilitate a joint agenda for science and innovation. One result has been a public private partnership to create a national repository of open source astronomy data available for use by the local astronomy community and contributing to accurate and updated information for research and analysis. Regulatory reform Regulatory reform can maintain economic competitiveness, particularly where it reduces burdens, improves transparency and clarity, and makes compliance easier. Approaches to regulatory reform can include: Using a defined public interest test to assess whether the costs of maintaining anti-competitive

regulation outweigh the benefits of removing them. Applying a systematic red tape reduction policy, such as repealing one existing regulation for every

new one introduced. Subjecting all new regulatory proposals to a transparent regulatory impact assessment process

which includes public consultation. Malaysia has pursued regulatory reform to improve the productivity of MSMEs via its Malaysia Productivity Blueprint (MPB). The MPB includes using digital platforms to make public consultation on regulatory assessment more transparent; benchmarking Malaysia’s approach to regulatory assessment public consultation processes with other APEC economies; improving the public sector’s

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capacity to conduct and manage regulatory impact assessments; and publishing an Annual Report on regulatory modernisation. Indonesia has also implemented a holistic approach to regulatory reform to support economic competitiveness. This has included developing a Regulatory Reform Roadmap to frame actions; undertaking a systematic stocktake and evaluation of regulations; improving public sector capacity; and mandating the use of regulatory impact assessments for all Ministerial proposals. Ease of doing business Many of the measures that economies have undertaken to promote competition and reform regulation also have the general benefit of facilitating business. In some cases, economies have pursued initiatives for the specific purpose of making it easier to do business. For example. A priority for Canada has been the elimination of tariffs on a broad range of food manufacturing

ingredients and certain manufacturing inputs in the consumer goods and transportation sectors.

Korea has completed FTA’s with five Central American economies, the United Kingdom, Israel, and Indonesia and is negotiating FTAs with various economies including China, Japan, Philippines, and Malaysia.

Chinese Taipei is discussing the introduction of a more robust regulatory framework to protect

personal property secured transactions to facilitate lending for such transactions.

Indonesia has reduced the regulatory hurdles to create a business and secure construction permits.

Vietnam has identified priority areas for further reform including contract enforcement, registering property, protecting minority shareholders rights, and improving sustainability.

Chile has made starting a business easier by replacing the requirement to print and present sealed accounting books and invoices to the Internal Revenue Service (SII) with an electronic system. It has also created the Office of Productivity and Entrepreneurship (OPEN) to incorporate SMEs into the modern economy fully and established the Office for Management of Sustainable Projects (GPS) to assist big investment projects obtain licenses and permits.

Economic and legal infrastructure Economies have pursued a range of economic and legal infrastructure enhancements to improve their function and competitiveness. For example. Canada’s infrastructure spending priorities have focussed on clean growth and employment

creation. It has prioritised projects to improve public transit systems, invest in water, wastewater, and green infrastructure, and enhance tertiary education institutions and rural broadband.

Indonesia has prioritised the development of affordable housing for urban and rural communities in its economic planning.

The Philippines has focussed on reducing inefficiencies in the logistics sector and improving

broadband connectivity. This has included legislative change to streamline application processes for transport operators and establishing broadband connectivity as a basic right for all consumers, businesses, and government entities. It aims to use competition policy to promote consumer welfare, innovation and investment, and efficient allocation and management of assets.

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Viet Nam has undertaken a range of improvements to its legal infrastructure to promote investment and business activity. These include amending the Law on Public Investment to improve community monitoring of public investment projects and improving legal frameworks to facilitate micro-economic reforms.

3. Reforms to achieve RAASR pillar 2 Pillar 2 seeks “deeper participation in labour, services and product markets by all segments of society, including MSMEs, women, youth, older workers, and people with disabilities”. Women In general it is accepted that increasing the economic participation of women results from a mix of outcomes which are increased levels of education, changing social attitudes towards gender roles, declining fertility rates, better access to childcare services and more flexible working arrangements. The initiatives taken by some economies reflect an intention to promote one or more of these outcomes. The broad approaches taken by economies and some examples are discussed below. The use of employment targets and quotas. Malaysia aims to have women fill at least 30 percent of leadership positions in the corporate sector. Tools it uses to achieve this include requiring publicly listed companies with market capitalization of RM2 billion to meet this target on their Boards; requiring companies with part government ownership to meet this target by 2018; and promotion by the Securities Commission the gender equality goals. Malaysia reports that in 2019 women made up 26.4% of board directors amongst the top 100 PLCs by market capitalization. This was an increase from about 19% in 2017. Subsidised childcare provision Chinese Taipei has focused on providing support that helps women to achieve an appropriate work-life balance which encourages them to remain employed. Initiatives have included extending child-rearing subsidies, expanding public childcare and preschools, subsidising private childcare and preschool, and encouraging employers to establish childcare arrangements for employees. Incentives for employers to provide childcare have consisted of increased government subsidies for employers and relaxing regulatory requirements governing childcare such as staff-child ratios. Promoting women’s economic contribution Viet Nam reports that in 2019 women-led enterprises comprised 25 percent of all enterprises, the highest proportion in the Asia-Pacific region. Nevertheless, Viet Nam has continued to build on this success by using the popular media to showcase role models and including women in government policy design to further promote the economic importance of women entrepreneurs. Korea has ensured that policy making considers and responds to the life cycle of women and their needs for work life balance. Some key initiatives it has undertaken include implementing affirmative action policies in recruitment; diversifying vocational training programs to encourage women in high value-added occupations; implementing programs to foster increased support for women scientists and engineers; and amending legislation to extend the period of a paternity leave from paid 3 days to 10 days and raise the maternity leave benefits of workers at SMEs. Enabling women entrepreneurs Chile has created a national on-line recruitment platform where women can promote to employers their credentials for business management and leadership positions and committed to improve women’s

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renumerations in scientific and technological occupations to promote careers paths and erode stereotypes. Youth Young people can be especially vulnerable to economic and social exclusion where economic shocks and/or family responsibilities disrupt their schooling and training; economic growth is too weak to absorb young people into the employment market from school, vocational training or university; unregulated employment markets exploit them; and their wages do not keep pace with asset and consumer prices. As discussed earlier in this paper young people are estimated to be bearing the brunt of the COVID-19 pandemic’s economic impact. Canada is one economy that reports a strong focus on policies to assist youth development. Initiatives it has undertaken include subsidising work-integrated learning opportunities and job placements for post-secondary students; amending student loan schemes to expand eligibility for non-repayment loans and make debt more manageable; and increasing education subsidies for students from low and middle-income families and for part-time students. MSMEs MSMEs account for over 97 percent of all enterprises and employ over half of the workforces across APEC economies. MSMEs' share of GDP ranges from 20-50 percent in the majority of APEC economies and accounts for less than 35 percent of direct exports. The approaches taken by economies to support existing MSMEs, encourage the creation of new MSMEs and lift the overall share of MSMEs participating in global supply chains can be categorised in the following ways. Improving government structures to support MSMEs A lack of focus in government on the needs of MSMEs can be a barrier to their development. Malaysia has elevated the role of policy making in relation to MSME in three ways. It has: Created a Ministry of Entrepreneur Development and Cooperatives (MEDAC) to spearhead the

National Entrepreneurship Agenda. Combined policy making for MSMEs and entrepreneurship within the National Entrepreneur and

SME Development Council (NESDC), chaired by the Prime Minister. Elevated the role of the SME co-ordinating agency (SME Corp. Malaysia) to perform the Secretariat

role for the NESDC and gazetted SME Corp. Malaysia as an agency reporting to the MEDAC. The SME Corp. Malaysia is a dedicated referral centre for policy formulation, information, and business advisory services to facilitate SME development.

A suite of programs was also created to enable the SME Corp. Malaysia to promote MSME development including: Focusing development programs on six areas of critical importance to MSMEs - Human Capital

Development, Access to Financing, Market Access, Innovation and Technology Adoption, Infrastructure and Legal & Regulatory Environment.

Introducing a rating system to assess the capabilities of SMEs and tailor assistance to boost their performance.

Encouraging finance for MSMEs It is not uncommon for MSMEs to struggle to obtain reliable finance to support their cash flows and investment. To address this the Philippines has:

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Created a more comprehensive credit information system to help financial institutions better assess credit risk, make more informed lending decisions, and bring down cost and time spent in loan underwriting and administration. The system enables the consideration of credit information from a wide scope of sources to help MSMEs build their credit history.

Established a system to enable borrowers to provide alternative collaterals for finance. It aims to provide more credit to flow to MSMEs, align the Philippine legal framework to international best practices of secured transactions and collateral registries (STCR), and support growth of supply chains.

To give lenders and borrowers more certainty Chile has introduced a the 30-day payment law, which establishes a maximum payment term of 60 calendar days from the date the debtor received the invoice, a time that will be reduced to 30 calendar days on February 16, 2021. This regulates the payment terms that the beneficiary of the service must comply with and the interest and fines that will be applied if payments are not made within the terms established by law. MSME capacity building and knowledge sharing MSME’s often do have time or funding to attend conferences and other traditional ways of knowledge sharing and support. Nevertheless, shared lessons are often more critical to MSMEs because they do have the financial capacity to withstand business mistakes. Thus, providing MSMEs with effective targeted information that they need to know, and which promotes collaboration and support networks, is one way economies can encourage them. Some joint initiatives in the APEC region to build MSME capacity include the following. Chile, Malaysia, the Philippines, Chinese Taipei, Thailand, and Viet Nam pursuing a cross-border

platform providing opportunities of training, networking, and showcasing for MSMEs to assist their digital competitiveness and resilience.

The Philippines, Russia, Chinese Taipei, and Thailand implemented the “APEC Local Innovation Ecosystem Initiative” which aims to encourage local SMEs to apply technology and digital tools to promote local innovation ecosystems and connect to global industrial value chains.

Chinese Taipei has also created: A collaborative regulatory adjustment mechanism which supports MSME capacity to comply with

necessary regulations with minimal managerial expenses and legal costs. It also serves to inform government about the likely costs on MSMEs arising from regulatory proposals.

A regulatory sandbox for innovations which is a mechanism where businesses with innovative ideas

can seek help clarifying legal uncertainties and meeting compliance requirements. The goal is to reduce the compliance cost for innovators, while ensuring that laws and regulations have the flexibility required deal with the needs of innovative products and service models.

4. Reforms to achieve RAASR pillar 3 Pillar 3 seeks “sustainable social policies that promote the other outcomes, enhance economic resilience and are well-targeted, effective, and non-discriminatory”. Building capacity for technological innovation China reports a strong commitment to strengthening its economic foundation to lead technological change and innovation. This suggests that it views its capacity for sustained technological innovation as a key holistic outcome with flow on benefits for its overall economic competitiveness and ability to pursue inclusive growth. This is consistent with the impact of the digital revolution.

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Key actions that China reports it has taken strengthen include the following: Increasing investment in basic research, accelerating technology transfer, protecting intellectual

property rights, and expanding international innovation cooperation. This has enabled it to diversify its participation in technological development across many disciplines such as aerospace, information communication, high-speed railway, and deep-sea exploration.

The development of a National Innovation Strategy to boost Chinese enterprises’ investment in basic research which remains lower than the average level in developed economies.

Initiatives to encourage innovation and entrepreneurship have included streamlining administration,

delegating more power to local government, and improving public services upon which business relies. China reports that these efforts will need to be continued and more market mechanisms encouraged in order to promote the associated outcomes which support innovation, such as more original innovation capacity, a more mature venture capital market, and a more favourable environment for MSMEs.

Building institutions and mechanisms to stimulate innovation including strengthening the dominant

position of enterprise technological innovation, promoting the transformation of scientific and technological achievements, strengthening talent cultivation and development, promoting collaborative innovation, and improving innovation governance. Key outcomes that have assisted this have included strengthening basic scientific research, improving the transparency and integrity of scientific research, optimising scientific research management and performance, and increasing incentives for the transformation of scientific and technological achievements.

Viet Nam reports that its approach to enhancing the sustainability of its economic responsiveness to technological change has been to promote the implementation of science, technology, engineering, and math (STEM) model in education. Reforms to vocational education and training Technical education often delivered via vocational education and training can be a key pathway to improved competitiveness and productivity. It is also a key economic inclusion tool because it offers an accessible and affordable avenue for skills accumulation and continuous leaning. The Philippines has sought to refocus its Technical Vocational Education and Training (TVET) sector to improve its global competitiveness and social equity. It has done this by creating two distinct programs defining the TVET sector and making them available nation-wide. TVET for Global Competitiveness caters to the needs of wage/self-employed workers, industry

workers, and trainers in need of skills upgrading, basic and higher education graduates, and workers needed in emerging technologies and newly established companies.

TVET for Social Equity is designed to assist disadvantaged groups gain and/or increase their economic independence and contribution. Its skills and training programs are targeted to various groups including informal workers, Indigenous peoples, farmers and fisherman, people suffering from substance abuse, victims of domestic violence and human trafficking, returning overseas foreign workers, and persons with disabilities.

Promotion of export services Services are an increasingly important contributor to economic growth and the digital revolution creates additional opportunities for service provision within and between economies.

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Chile has undertaken many activities to build its capacity and create opportunities to promote services than can be exported. Through the Service Export Program led by the Ministry of Finance, it has implemented various initiatives to create supportive frameworks such as: Coordinating across the economy various activities and initiatives related to the global services

sector, such as productive promotion, export, and investment promotion, training and certification, in addition to incorporating culture and the arts, as a growing area of development with particular relevance in national economic growth.

Used public-private coordination to develop a regulatory and information framework to support export services. This included standardising electronic export invoices, developing information and measurement tools to enable the creative industries participate in export activities, reforming taxation of export services.

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Appendix 4

OECD inclusion framework OECD economic inclusion framework120

OECD objective OECD method Invest in people and places which are left behind

Actions to (1) reverse inter-generational disadvantage caused by unequal access to early education, health services or the labour market; and (2) promote social mobility. Promoting quality childcare, early education programmes and life-long

learning and acquisition of skills, in particular through vocational and tertiary education;

Ensuring access to quality health services, housing and infrastructure; and

Promoting regional catch-up by enabling the fair and efficient reallocation of labour, capital and natural resources within and across regions.

Support business dynamism and inclusive labour markets

Joint actions by governments and business (workers, firms and entrepreneurs) to reduce gaps in the productivity of firms and related income inequality. Boosting productivity and business dynamism by fostering

entrepreneurship and innovation at all levels, strengthening competition, and ensuring wages increase with productivity;

Achieving more inclusive labour markets by facilitating the reallocation of workers and capital, and ensuring the economic empowerment of women and other underrepresented people;

Preparing for the future of work, and ensuring that on-going transformations in the world of work do not widen divides; and

Strengthening trade and investment through international co-operation on tax policy with the implementation of the OECD/G20 BEPS package, while promoting responsible business conduct and the OECD’s Guidelines for Multinational Enterprises.

Promote efficient and responsive government

Actions to foster wide stakeholder ownership of policies to promote inclusion. Ensuring citizens play a meaningful role in the design and evaluation of

policies that concern them; Aligning policy packages across levels of government; and Integrating equity aspects from the start in policy design.

120 Aegis Consulting Group analysis based on OECD information contained in OECD Framework for policy action for inclusive growth, Policy Brief May 2018

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Appendix 5

APEC Action Agenda on Advancing Economic, Financial, and Social inclusion (the AAEFSI) The table below illustrates how the AAEFSI objectives and indicators can align with structural reforms under the agreed EC policy framework. The AAEFSI and enabling structural reform121

AAEFSI122 EC policy framework Approach #1

EC policy framework Approach # 2 and # 3

Economic Inclusion Increasing equal access to new opportunities Competition policy

Regulatory reform EoDB Public sector and

corporate governance


Services policies Innovation policies Digital economy

policies Infrastructure

policies

Enhancing economic opportunity and labour force participation including for underrepresented and vulnerable groups

Regulatory reform Human capital development policies

MSMEs policies Policies to

strengthen the participation of women in economic life

Improving regional trade and investment via trade facilitation, access to markets and internationalisation of MSMEs

Competition policy EOBD

Services policies Innovation policies Digital economy

policies Infrastructure

policies Accelerating transparent and reliable investment in infrastructure to improve access to services and economic and social interconnectivity


Public sector and corporate governance

Infrastructure policies

Rural and remote areas development and integration

Promoting digitalisation and technology entrepreneurship

Competition policy Economic and legal

infrastructure

Human capital development policies

Digital economy policies

121 Aegis Consulting Group analysis 122 Aegis Consulting has summarised the action agenda

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AAEFSI122 EC policy framework Approach #1

EC policy framework Approach # 2 and # 3 MSMEs policies Innovation policies

Financial InclusionImproving digital infrastructure and legal frameworks to enable access to credit, mobility of money, provision of micro-finance, consumer protection, reliable and regionally consistent transactional security, and the financial capacity of MSMEs

Regulatory reform EoDB Public sector and




MSMEs policies Innovation policies Financial inclusion

policies for women and other groups

Increasing access to financial services and products for unserved and underserved populations

EoDB Economic and legal

infrastructure

Rural and remote areas development and integration

Financial inclusion policies for women and other groups


Developing and sharing economies’ financial inclusion strategies to build financial literacy and capacity within populations



Social Inclusion Building the capacity of labour and business to optimise the advantages of digitalisation including via education and training, lifelong learning, policies to reallocate displaced labour and childcare

Regulatory reform Human capital development policies

Using social investment and services and digital platforms to enable the social empowerment of marginalised groups


Competition policy


Human capital development policies

Strengthening social safety nets in line with ILO recommendations

Regulatory reform Public sector and



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Appendix 6

World Bank policies to boost productivity The following table illustrates the World Bank’s recommended Legal Reforms (LR) and Administrative Reforms (AR) 123. Table 6: Policies to boost productivity via labour market, education, and training reforms124

Policy area

Short-term policy options Medium-term policy options

Reducing labor market rigidities to increase the demand for labor and reduce informality Making hiring modalities more flexible

Build consensus on the best options for expanding hiring modalities

Implement legal changes required to expand contracting modalities (LR)

Monitor and evaluate effectiveness (AR)

Reducing the cost of terminating employment

Review previous proposals to increase the efficiency and predictability of labor courts. Review international experience on labor tribunals and labor court reforms.

Propose ways to reduce the costs of employment termination.

Reform labor courts (AR, LR)

Implement alternative severance pay (with introduction of unemployment insurance mechanism; see below) (LR)

Reducing the cost of formality

Identify mechanisms to provide social security with fewer distortions (unbundling benefits, for example).

Explore options to de-link old- age income support and health insurance from labor status (including fiscal implications).

Remove some (noninsurance) services from social security bundles. (LR)

Implement feasible option for delinking old-age income support and health insurance from labor status. (LR)

Improving institutions and programs to deliver labor market–relevant skills Developing a national skills strategy

Build consensus on skills and develop skills strategy, including as part of broader national or regional development strategy.

Identify specific needs of the vulnerable and program design adjustments to meet these needs

Identify necessary legal adjustments

Propose institutional mechanisms for implementation (LR).

Improving the quality, labor market orientation,

Review the private sector orientation of curricula

Modernize teacher training and strengthen monitoring to

123 World Bank, Labor Markets for Inclusive growth, Mexico Policy Note 4, 2012, pp13‐15. 124 Ibid

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Policy area

Short-term policy options Medium-term policy options

and accessibility of skills development through the education and training sectors

Review the design of core training programs and identify reform agenda.

Explore options to link funding for training to results in labor markets.

Strengthen the design of accreditation system for education and training programs

improve teacher performance (LR).

Implement changes for training programs (including incentive mechanisms for a focus on results) (LR)

Implement the accreditation system (LR)

Strengthen the early childhood development system.

Strengthening and expanding mechanisms to integrate skills institutions and programs

Identify areas where bridges need to be established or strengthened between systems or institutions.

Review options for mechanisms to establish bridges and switch between systems.

Set up mechanisms to allow individuals to switch between systems (LR).

Facilitating job search and matching through comprehensive employment services Developing an integral model of employment services

Identify services needed by different population groups to enter the labor market.

Identify existing services and possibilities for linking them.

Develop an integral model, including for the vulnerable (AR).

Developing a mechanism to provide income protection during unemployment

Design models, explore institutional arrangements, estimate costs, and explore mechanism to switch from severance to unemployment insurance.

Establish the system (LR).

Strengthening the national system of competency-based certification

Explore options to provide more autonomy to CONOCER and to increase the demand for certification from workers and the private sector

Expand certification system to cover all skills sets, ensuring its compatibility with external labor markets (particularly the United States) (AR)

Documents

Input Paper for Structural Reform Ministerial Meeting