15 June 2004 • Austria's Position in the International Quest for Structural Adjustment. The New EU Structural Indicators • Ewald Walterskirchen

The European Council of Lisbon in 2000 has formulated the ambitious goal of transforming the European Union into the most competitive knowledge-based economy of the world. Economic growth in the EU was to be raised and made more sustainable and accompanied by higher job creation and greater social cohesion. The EU structural indicators represent a meaningful first approach of gauging progress towards achieving these high-aiming objectives. The 14 new EU key indicators appropriately focus on levels achieved (e.g., GDP per capita), avoiding the previous mix-up with cyclical macro-economic indicators. An overall ranking of countries according to such a heterogeneous, non-weighted set of indicators would nevertheless be misplaced, as has been warned against also by the European Council and the Commission.

Austria's competitive position in structural terms within the EU may be assessed by supplementing the 14 key indicators of the EU for the target areas economic performance, labour market, innovation, economic reforms, social cohesion and environment by further indicators and more qualitative elements of evaluation. The relative position of Austria in the international quest for structural adjustment may be characterised as follows for the six policy target areas:

• Austria's economic level as measured by GDP per capita is among the highest in the EU. This also holds for private consumption per head and the ratio of investment to GDP. Labour productivity in Austria is under-estimated by Eurostat data, due to the limited international comparability of employment statistics. A country's relative economic position depends highly from whether it is measured by the level (GDP per capita) or the medium-term trend (economic growth). While GDP per capita is rather high, Austria claims only a medium-range position for its average economic growth since 1995.

• The employment rate as a major indicator for the labour market situation in Austria is within the medium range of EU member states. It is upward biased for several reasons, notably by including non-active recipients of child-care benefits. While Austria's rate of unemployment is low, this is secured by one of the lowest employment rates of older workers within the EU. One should note critically that the indicators abstract from the unemployment rate, taking only the number of jobs even if part of them are precarious. Long-term unemployment, however, is retained as a measure of social cohesion.

• On the educational indicators, i.e., graduates from secondary education and public expenditure on human resources, Austria is in the upper tier of EU countries. However, lifelong learning is poorly developed in Austria and the number of natural scientists leaves to be desired. Greater efforts at human capital formation are necessary if the high per-capita income position is to be maintained. Still, measuring educational standards by the successful completion of upper secondary schooling is problematic, as this indicator shows, for example, most EU accession countries in a top position ahead of Sweden and Finland (for Austria, vocational schools and the polytechnics cycle are included).

• In the area of innovation, Austria only holds a medium-range position in the EU. This probably mirrors its specific economic structure with the lack of large-scale domestic corporations and the dominance of low- and medium-tech firms, whereas high-tech enterprises in the information and communication (ICT) or the biotechnology sectors with often very high R&D intensity are relatively scarce. The indicator of ICT expenditure also confirms the subdued innovation activity in Austria, where the relatively low R&D and ICT expenditures of the corporate sector should be seen as inter-related. The government sector in Austria is rather generous with spending on research and development, with the GDP ratio being on a par with that for Sweden. So far, though, it did not suffice in order to meet the objectives.

• The EU structural indicators, which are meant to gauge progress with economic reform, actually do not really lend themselves to that purpose. Thus, a country's relative price level is of little significance as it is primarily a function of the level of economic development (services prices) and not of economic reforms. Also the investment ratio of companies is of limited use since it depends not only on economic reforms, but on many other important factors. Of how little value these indicators are for measuring economic reform is revealed by the fact that the top ranks are held by the economically less developed countries of southern and eastern Europe.

• In a similar way as for its level of economic development, Austria ranks close to the top within the EU for its degree of social cohesion. This holds for the indicators of long-term unemployment and the dispersion of regional employment rates, as well as for the distribution of income according to the available data. Likewise, the poverty risk is relatively low in Austria, although here the ranking means little because of the tiny and statistically insignificant differences.

Finally, Austria fares poorly on the EU environmental indicators, as the latter mainly use the development over time and not the level as a yardstick. In an international comparison, Austria's environmental standard is relatively high, but strains on environmental quality are rising at an above-average rate. Austria's earlier position as "environmental pioneer" has been lost. Greenhouse gas emissions are relatively low, but the trend since 1990 has been significantly worse than the EU average. Compliance with the Kyoto agreement is far off. Also, commercial road traffic has expanded above average in Austria and has largely contributed to the rapid increase in greenhouse gas emissions. While the energy intensity is comparatively low, electricity consumption has outpaced GDP growth over the last years.

For further information, please refer to Ewald Walterskirchen, E-Mail-address Ewald.Walterskirchen@wifo.ac.at For the full text of this article see the Internet under http://www.wifo.ac.at