Structural reforms are used as an effective measure especially in industrial economies to do away with structural rigidities in product and labor markets. Structural reforms are often used to imply deregulation policies undertaken by a government aimed at a more effective functioning of markets.
Structural reforms in France were taken up to induce price flexibility and competition in the product and labor markets. Structural reforms had been taken up in France to increase sustainability. France had been undertaking deregulation measures since the 1970s. The issue of social sustainability of deregulations had been a concern.
Also reform measures bring about changes in fiscal policies.In France structural reforms were seen as a measure to increase fiscal policy sustainability. High levels of government expenditure arising mostly out of expenditures in social welfare programs and high unemployment had been prevalent in France.
This resulted in increased public debts. Structural reforms were taken up to reduce the pressure of public debts on the French Economy. One of the important aspects of structural reforms in France was the scope to reduce age-related spending. Increasing retirement age had been a major step. Structural reforms also addressed the issue of cost-effectiveness in health care expenditures.
There were two important challenges facing France in implementing structural reforms –
Introducing the structural reforms early enough, so as to maximize the effectiveness of the reforms.
Attaining compatibility between social welfare and fiscal sustainability.
Removal of structural rigidities in France in the product and labor markets allowed them to operate efficiently. Structural reforms had substantial impact on employment. In the absence of unemployment benefits, and wage control measures, incentives to work efficiently was high. This had a major impact in the labor market. Mobility of labor increased and more effective allocation of resources in the economy was possible. In 2006, International Monetary Fund (IMF) noted that with complete structural reforms, France would be able to attain real GDP at 16% above baseline.
Last Updated on : 26th June 2013