Evidence-based policy making

Firms in the new EU member states of Eastern Europe are more productive than those in other transition economies, but with a diminishing advantage. The least productive firms benefit the most from membership, although the situation is reversed in the case of foreign-owned firms. Foreign direct investment fails to promote knowledge and technology spillovers beyond the receiving firms. The dominance of multinational enterprises in the new EU member states enhances the threat of corporate state capture and asymmetric infrastructure development, whilst access to finance remains a constricting issue for all firms.

Globalization and automation have brought about a tremendous increase in productivity, with enormous benefits, but also a dramatic reallocation of jobs, skills, and incomes, which might jeopardize the full realization of those benefits. Current social policies may not be adequate to successfully redistribute the gains from automation and globalization or to advance the reallocation of jobs and skills. Under certain circumstances, an unconditional basic income might be a better alternative for achieving these goals. It is simple, transparent, and has low administrative costs, though it may require higher taxes or a cut/reallocation of other public expenditures.

Employment and labor force participation (LFP) rates have increased throughout Europe since the 1990s, with little interruption from the Great Recession. While many credit labor market reforms for this progress, ongoing educational expansion might actually be more important. This implies that the overall employment rate of an economy can change if the share of the population with tertiary education increases, even in the absence of any labor market reforms or effects of the business cycle. Taking this compositional effect into account makes it possible to disentangle the impact of reforms.

Deregulation and managerial compensation are two important topics on the political and academic agenda. The former has been a significant policy recommendation in light of the negative effects associated with overly restrictive regulation on markets and the economy. The latter relates to the sharp increase in top executives’ pay and the nature of the link between pay and performance. To the extent that product-market competition can affect the incentive schemes offered by firms to their executives, the analysis of the effects of competition on the structure of compensation can be informative for policy purposes.