Showing papers in "Austrian Economic Quarterly in 1998"

Austria's Old-Age Pension System in an International Comparison

Abstract: Adverse demographic trends necessitate reforms of the old-age pension systems in all industrialized countries. By the year 2030, the population of pension age will have increased by more than 70 percent, while the working-age population will have shrunk by 12 percent. EU calculations indicate that in order to safeguard long-term financing of the current system, Austria would have to raise contributions by well over 50 percent, raise the retirement age by 11 years or reduce the net income replacement rate by 45 percent. From an international perspective, Austria has a relatively generous pension system. In view of the very low retirement age and high net income replacement rates, the Austrian system offers sufficient maneuvering room for socially acceptable reforms designed to put the pension system on a sustainable financial basis.

Reasons for Austria's Current Account Deficit

Abstract: In the course of the 1990s, Austria's balance on current account has steadily deteriorated. Beginning the decade in equilibrium, the current account posted a deficit of 1¾ percent of GDP in 1996 and 1997. The deterioration was mainly a result of the plunge in the surplus of travel services from 3½ percent of GDP in 1991 to ¾ percent of GDP in 1997. The relatively high deficit in the trade account showed only minor changes in the 1990s which could not offset the drastic deterioration in the tourism balance. Moreover, since 1995, the transfer balance has been weighed down by substantial net payments to the EU. In 1997, the growth in the current account deficit appears to have been arrested, a result primarily due to weak domestic demand and the trend reversal in foreign exchange rates. Yet, in an international comparison, the situation remains bleak: Austria places third to last among all EU countries, ranking just ahead of Portugal and Greece.

The Impact of Demographic Changes on Labor Supply. Main Facts and Trends

Abstract: The deceleration of labor supply growth in the late 1990s is linked with the aging of the work force. The process of aging raises macroeconomic as well as microeconomic policy issues. The macroeconomic issues are linked to the rise in transfer costs of an increasing proportion of retired elderly relative to the active work force. The microeconomic issues refer to the need for policy response in the face of fundamental changes in the organization of work, which affect the core functional mechanisms of the labor market. All age groups will have to adapt to the complex changes under way. Population aging is just an additional aspect in the challenge of institutional and regulatory reform. It has an impact on pay and promotion systems, insider-outsider problems, welfare and training systems.

Slight Decline of the Social Expenditure/GDP Ratio. Austria's Social Expenditure in 1996

Abstract: Computed in accordance with the European System of Integrated Social Protection Statistics (ESSPROS), social expenditure in Austria totaled ATS 714 billion or 29.5 percent of GDP in 1996, a decline of 0.2 percent against 1994 and 1995 achieved in spite of weak economic growth. Social spending slightly exceeded the EU average of 28.4 percent of GDP (1995), but matched that of other countries of comparable social and economic structures. In the early 1990s, the introduction of substantial new benefits caused a steep rise in the social expenditure/GDP ratio, but measures taken to consolidate public budgets have dampened the pace of the increase since the mid 1990s.

Successful Structural Change in Styria

Abstract: What has happened to the economy in Styria over the past two decades could be described as a case history of regional rehabilitation. Looking at employment only, we find a restructurization process drawn out over more than 30 years, at the temporary end of which there are more new jobs created in Styria than in any other of the Austrian Lander. The time it took for this achievement needs to be seen as the typical time requirement for reviving the economy of a region. The true problem of regional policy is the discrepancy between political legitimation and evolutionary structural change.

Currency Crises. A Challenge for Economic Theory and Policy

Abstract: Globalization and the liberalization of capital movements have increased the fragility of financial markets. The dangers resulting from unstable and crisis-prone financial markets can hardly be over-estimated and deserve the highest attention of economic policy. The latest currency crises in East Asia and Russia, and their manifold causes have therefore drawn renewed interest of academic as well as policy circles to issues of international arrangements to prevent such crises, their efficient management, but also of the architecture of international regulations for financial and capital markets, and of the role of the banks.

Austria's Innovation System in an International Comparison. The Austrian Report on Technology 1997

Abstract: This article contains a summary of the "Austrian Report on Technology 1997" drafted within the framework of the Austrian tip program. The Report on Technology provides an overview of facts and linkages within the Austrian innovation system as seen from an international perspective. It is intended to serve as a source of information for the definition of positions and the promotion of a debate on technology policy issues. It addresses the actors of the innovation system in business, research, politics and administration as well as the general public interested in issues of technology policy.

Sharp Drop in Relative Labor Costs and Unit Labor Costs in Manufacturing in 1997

Abstract: After having worsened during the first half of the 1990s, the international unit labor cost position of Austrian manufacturing improved markedly in 1996 and 1997. As a result of continuously high productivity growth and modest increases in labor costs, Austrian unit labor costs fell by 1 percent in 1996, and 5 percent in 1997; the average of its trading partners decreased by 0.2 percent and 2.1 percent, respectively. With the recovery of major trading partners' currencies, the schilling depreciated by 1.5 percent in 1996 and 2 percent in 1997, so that compared to the average of unit labor costs of its trading partners (measured in a common currency), unit labor costs in Austrian manufacturing fell by 2.2 percent and 4.9 percent, respectively.

High Economic Growth in 1998, but Increasing Risks in 1999. Economic Outlook for 1998 and 1999

Abstract: The Austrian economy is expected to grow in 1998 by 33 percent, the highest growth rate since 1991 A vigorous expansion of exports and investment outlays form the basis of this dynamic development Economic activity is set to slow down in 1999, however, as a result of the turbulence on the global financial markets At 28 percent, GDP growth in Austria will nonetheless continue to exceed the medium-term trend

The Transit Agreement. A Preliminary Assessment

Abstract: In a report completed in late 1997, the EU Commission found that the measures of the Transit Agreement were an effective means to reduce the environmental burden caused by truck transit through Austria. Yet in spite of the ceiling set on overall transit rates, truck traffic on the Brenner route continued to grow. Before expiry of the Transit Agreement, but by the end of 2003 at the latest, measures need to be taken to achieve a sustainable solution for the transit traffic problem in the sensitive Alpine region.

The Financial Crisis in South-East Asia – Its Impact on Austria

Abstract: At present it is not possible to gauge the extent of the financial and economic crisis in South-East Asia. The effect of this crisis on Austria will, however, remain marginal: there are few direct trade links between Austria and the countries in question (exports to these countries amount only to 1½ percent of total exports). Austria's main trading partners are not greatly affected and the European economy has recently taken an upward turn. Moreover, Austrian banks are not very active in Asia's loans extended to this region amount to only 1¼ percent of total foreign loans outstanding. Nonetheless, the current crisis should be taken as an opportunity to regulate and stabilize exchange rates between major currencies and the international financial system.

European Social Fund and Labor Market Policy

Abstract: Since 1995, moneys from the European Social Fund (ESF) have been used in Austria to support labor market policy measures. The ESF's brief is to foster structural change by promoting employment and developing human resources. As the European Union handles its financial involvement in the labor market policies of its member states solely through the ESF, it can thus exercise more influence on national strategies through the ESF than within the scope of other Community activities in the field of employment, social and labor market policies. Interventions by the ESF are underpinned by the concept of individual employability, an approach that nevertheless makes up just one of the pillars of the European employment and labor market strategy.

Occupational Pension Systems in Austria 1996

Abstract: The advantageous legal conditions for pension funds have made occupational pension systems in Austria more popular since the last WIFO projection, done in 1994. However, compared internationally, Austria is still far behind other countries that have a strong public pension system. While the pension funds are developing quite dynamically, the number of direct pension promises with reserve coverage is declining; the number of pension promises covered by life insurance policies is stagnant.

Austrian Economy Prepared for EMU. Medium-term Projection for the Austrian Economy Until 2002

Abstract: A stronger international competitive position and brisk domestic demand will have a positive impact on the Austrian economy in the next years. Assuming that the international financial crisis will be temporary in its detrimental effect and that the public budget consolidation policy will continue, there are no obstacles to the achievement of stable growth. In 1997-2002, GDP will grow by 2.75 percent p.a. on average, which is slightly above the EU average rate. Growth of the Austrian economy has accelerated since 1996. The dynamic development is likely to be temporarily stayed by the effects of turbulences on the international financial markets. After a slight slowdown in 1999, total economic production will once again expand strongly. As a result of production expansion and measures under the National Action Plan for Employment, some 100,000 additional jobs could be created in the projection period. Unemployment should decline by about 1 percentage point (from 7.2 percent to 6.2 percent of the dependently employed in line with the traditional definition; from 4.4 percent to 3.7 percent in accordance with the EU definition). The external sector will make a positive contribution to growth of 0.25 percent of GDP on average. Improved terms of trade and an upswing of the domestic tourism industry will provide for a noticeable reduction of the current account deficit over the next years. In the projection period domestic demand is supported by strong and steadily growing private consumption (+2 percent p.a. in real terms on average). Consumer confidence has improved. As a consequence of the growth of disposable real income of private households, the personal savings ratio will gradually be returned to its long-term equilibrium value. At an average growth of 4 percent p.a., gross fixed capital formation up to 2002 will rise at double the pace of 1991-1997. Plant and equipment expenditure will develop more dynamically, while building investments will grow moderately as a consequence of the redimensioning process in residential housing construction. Neither import prices nor unit labor cost are expected to make for any upward trend of prices domestically, and sustained competitive pressure effectively restricts price increases, so that prices will remain stable. The average rate of inflation will be 1.25 percent p.a. According to the projection (which does not consider the plans for tax reform), budget consolidation will continue in 2000, after a hiatus in 1999. The deficit will be less than 1.5 percent of GDP, government debt, on the other hand, will not decline below 60 percent of GDP.

Business Services in Austria

Abstract: Thanks to their excellent performance, business services have attracted the attention of economists in recent years. According to national accounts figures, they contributed ATS 126.2 billion, or 5.2 percent, to GDP in 1996 and provided 143,490 jobs. In 1987 to 1996, average growth in value added amounted to 10.0 percent in nominal terms and 5.8 percent in real terms. Employment increased by 5.5 percent per year on average. In contrast, the services sector as a whole achieved an average job growth of 1.5 percent per year, whereas manufacturing lost 1.4 percent on average during this period. Compared to other OECD countries, Austrian business services lag behind, at a share of 6.1 percent of employment, although their growth rate is better than in most comparable countries. The speed at which they gain ground reflects the high growth potential inherent in this sector. It is expected that in-house services will be increasingly outsourced. Looking at input-output statistics for 1983 and 1995, we find that the manufacturing sector has indeed stepped up its provision of services but that additional demand for new services has been created in parallel. Available data suggest a net increase of new jobs, although no proper econometric evaluation has yet been made. In this paper it is argued that business services have a number of distinct characteristics which create barriers to competition. They are basically intangible and cannot be traded. Ex-ante quality are unobservable, which frequently leads to information asymmetries (especially moral hazard). It is thus important for suppliers to establish long-term relationships with customers and to project a quality image. For this reason the market for business services is characterized by a high degree of regulation as well as high entry barriers. The sector is also a typical example of a market with a wide range of products, dominated by some companies and little competition in spite of the generally small size of firms and the absence of economies of scale. Business services are intermediate inputs which improve a region's standing as a business location. A great variety of specialized services, usually tied to the location, leads to productivity gains for the production sector, which in turn drives supply when sufficiently large. The forward and backward linkages between the two sectors induce agglomeration economies and fosters the establishment of core-periphery patterns. In the presence of proximity advantages, e.g., arising from transportation costs, regions in the center can maintain higher real wages due to agglomeration economies, while competition between regions to attract new industries is weakened.

Innovation and Regulation in the Telecommunications Sector

Abstract: Since the mid 1980s, the regulatory framework of the telecommunications sector has been undergoing a process of reform on an international scale. Market conditions have to be adjusted to technological change. Regulation is an element of technology policy, as it provides incentives for the development and diffusion of new technologies and services. In general, any regulatory reform must be based on the understanding that new instruments (e.g., auctioning) have to be developed, that regulation frequently demands an international harmonization of strategies and measures, and that the maintenance of the technical and legal rules applied to traditional telecommunication services (telephony) without due consideration of changing conditions may hinder the emergence of innovative applications, such as electronic commerce.

Aspects of European Economic and Monetary Union

Abstract: With the launching of Economic and Monetary Union (EMU) on 1 January 1999, the prerequisites should be in place to make European economies more competitive in the long run. Skeptical economists have forwarded numerous reasons why EMU will not work, usually based on the "optimal currency area" theory. Any further progress in the economic convergence of member states certainly will require monetary union as its basis. For the Austrian economy, participating in EMU is a necessary and logical step following its past economic policy, which will nevertheless present business and politicians alike with new challenges.

Far-Eastern Markets: Attractive for Austria in Spite of the Crisis

Abstract: Towards the end of 1997, a financial and currency crisis was precipitated in the Far East. But once the affected countries have coped with their current problems, a brisk upswing can be expected. A WIFO survey performed at the apex of the crisis found that 62 percent of the companies polled felt that exports to the Far East would rise, while 29 percent expected no change. Among direct investors, the majority considered that the situation was stable. Austria has so far not profited much from the economic upswing of the Far East. Exports to the region (excluding Japan) are a meagre 3 percent; with exports of consumer goods and commercial services particularly weak. Nevertheless, Austrian exports to Eastern Asia more than doubled between 1989 and 1997 (from ATS 10 billion to ATS 22.5 billion, a plus of 10.7 percent p.a.), while total exports rose by just 66 percent. In the first quarter of 1998, demand for imports into the affected countries remained almost unchanged (–3.0 percent). In 1996, 0.23 percent of their total imports came from Austria. Preliminary figures for 1997 show 0.17 percent, a slightly lower market share than in 1989. Austrian direct foreign investment is negligible: cumulated new investment over the six years between 1992 and 1997 was just ATS 1.0 billion. The WIFO survey pointed at a number of difficulties encountered by exporters to the Far East: for a majority of exporters (58 percent), substantial differences in the mentalities of Western Europe and Eastern Asia were a problem; high customs duties were a major barrier for 53 percent; and the considerable exchange risk was seen as a burden by 45 percent. According to the OKB business report (1998), export credit guarantees for Asia under the Export Promotion Act made up ATS 70.4 billion by the end of 1997, of which ATS 46 billion were for Far East countries. The highest guarantee commitments were for Indonesia (ATS 17.6 billion), China (ATS 17.1 billion), Thailand (ATS 6.0 billion) and Vietnam (ATS 3.0 billion). Most of the credits to the Far East covered by guarantees were financed within the scope of the OKB support scheme. The crisis in Eastern Asia should not be abused as an ex post justification for the disinterest shown by Austrian business in the region. Neglecting this market was probably more expensive in terms of potential jobs, sales and profits in Austria than any losses that might have been suffered in an (improbable) worst-case scenario. The crisis should rather be viewed as an opportunity to make up for past errors and omissions by exploiting a psychologically advantageous situation and getting in well ahead of competitors.