## CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS ## Source details **Canonical URL:** [CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS](https://www.imf.org/-/media/files/publications/weo/2024/october/english/ch03.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2024/october/english/ch03.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2024/october/english/ch03.pdf.json) --- ### Overview and objectives - The global economy has been enduring a prolonged period of structural weakness, with medium-term prospects under current policies described as bleak. - Slowdown drivers: aging populations, weak investment, structural frictions hindering reallocation of capital and labor toward productive firms. - Structural transformations tied to the green transition and technological change require significant investment and resource reallocation. - Chapter objectives: - (1) shed light on factors that influence the social acceptability of structural reforms, - (2) identify strategies, tools, and institutions that can enhance acceptability so reforms are passed, implemented, and sustained. - Core guiding questions: - Historical overview of reform episodes: How difficult has implementation been? How common and effective are communication, consultation, and mitigating measures? - Drivers of social acceptability: Role of individual characteristics, economic self-interest, perceptions, and information? - Policy toolkit: Can information strategies correct misperceptions and increase support? What other tools/institutions help forge consensus and sustain reforms? ### Main findings - Implementation difficulty and strategies - The pace of reform efforts has more than halved since the global financial crisis of 2008–09. - Nearly 20 percent of policies aimed at increasing competition in the electricity sector were never implemented. - Almost 50 percent of policies providing incentives for workers to work longer were never implemented. - Communication, consultation strategies, and mitigating measures are more reliable predictors of implementation than macroeconomic or political context. - Role of beliefs and perceptions - Socioeconomic characteristics account for only 6 percent of individuals’ support for reforms to increase competition in network sectors and 11 percent for policies to integrate foreign-born workers (in the surveys used). - Individuals’ beliefs and perceptions explain about 80 percent of reform support. - Misinformation and misperceptions about how policies work account for about half of that support. - Effectiveness of information and mitigating measures - Randomized survey experiments show that providing information can correct misperceptions and increase support. - Explaining how policies work: additional support for migrant integration policies from information about how those policies work was equivalent to more than 40 percent of the share of those in the control group who were opposed. - Tailored mitigating measures addressing self-interest, distributional, and societal concerns can improve acceptability. - Lack of trust in parties involved and in governments’ ability to implement policies and mitigating measures can undermine acceptability. - Institutional toolkit - Independent, nonpartisan policy research and institutions have often been key to raising awareness and building consensus. - Consultations with stakeholders, including during policy design, help cement trust and advance enduring reforms. - Reforms not tailored to domestic conditions or pushed with multiple other major reforms often face implementation challenges or reversal. ### Primer: social acceptability of reforms - Structural reforms modify acquired rights and economic rents to improve resource allocation, creating winners and losers. - Distribution and timing of gains/losses: - Costs often concentrated and immediate; gains diffused and slow. - Status quo appeal arises because costs are more salient and payoffs are uncertain. - Public resistance determinants: - Not solely explained by objective economic self-interest (employment status, age, education). - Beliefs and perceptions—about policy effects and policymakers’ willingness/ability to implement—matter critically. - Lack of trust in compensation plans has derailed or complicated tax and subsidy reforms. ### Database and stylized facts on reform implementation (1996–2023) - Database scope and classification: - Tracks product and labor market reform episodes during 1996–2023. - Documented reform aims: PMR-electricity (ease product market regulation to increase competition in the electricity sector), elder LP (provide incentives for labor participation among elder workers), migrant integration (increase integration of foreign-born workers into labor markets). - Constructed using text analysis of quarterly country reports from the Economist Intelligence Unit (EIU) covering 26 advanced economies, 36 emerging market economies, and 14 low-income countries. - Each country-year observation classified as: (1) no relevant reform under discussion, (2) reform under discussion but not implemented, or (3) reform implemented. - Reform intensity and implementation rates: - Reform intensity has declined over time in almost all policy fields and country groups. - Particularly sharp drop in PMR-electricity reform episodes when sample split around the global financial crisis. - Only about 50 percent of all PMR-electricity and elder LP reforms discussed in advanced economies over the past three decades were eventually implemented. - Implementation rate for elder LP reforms in emerging market economies is comparable. - For PMR-electricity reform episodes, the share of implemented reforms is 90 percent for emerging market economies and for low-income countries. - Implementation rate for migrant integration reform episodes is about 80 percent across country groups. - A substantial share of reforms that are implemented are diluted or implemented amid resistance. - Reduction in reform intensity coincides with an increase in social discontent (civil unrest, distrust in public institutions, dissatisfaction with democracy, lower voter turnout). ### PMR-Electricity: implementation outcomes and strategies - Public resistance and scaling down - Public resistance occurred in a substantial share of reform episodes: - roughly 22 percent of migrant integration episodes - 30 percent in the case of PMR-electricity episodes - as many as 40 percent for elder LP reform episodes - In many resisted episodes policymakers scaled down the scope of the reform: - nearly 40 percent of resisted elder LP reform episodes were scaled down - as many as 45 percent of episodes in the second half of the sample were scaled down - Reforms enacted but later reversed had a higher share that faced resistance when implemented. - Consensus-building indicators - Two new indicators assessed consensus-building: - Use of consultation and communication strategies (consultations, hearings, referendums, independent communication agencies) - Use of complementary and compensatory measures (job training programs, temporary job protections, price subsidies, grandfathering clauses) - Use patterns: - Advanced economies resorted more often to consultation and communication strategies; their use of compensatory measures has picked up significantly since the global financial crisis. - Emerging market economies and low-income countries relied more on complementary and compensatory measures, particularly in PMR-electricity reform episodes (subsidies or price controls frequently part of policy packages). - Frequency gap: - In a significant share of reform episodes (close to half, on average), the use of these strategies was not prominent enough to be captured in the data. - Association with implementation success - Historical correlations (multinomial logit regressions): - These strategies are associated with a more than 6 percentage point increase, on average, in the likelihood of implementing proposed reforms across policy areas, with stronger effects for attempts facing resistance. - In episodes met with public resistance, reaching implementation is more likely when explicit efforts to consult or communicate with social stakeholders are used. - Use of compensatory and complementary measures is generally associated with a higher likelihood of implementing reform proposals in both resisted and less resisted episodes, with differences across reform areas. - Comparative explanatory power (dominance analysis): - Reform strategies jointly explain about 28 percent of the implementation likelihood, on average, across different policy areas. - Macroeconomic context variables explain 16 percent, on average. - Political context variables explain 22 percent, on average. - Conclusion: Active use of consultation, communication, and mitigating strategies is a more robust predictor of implementation success than macroeconomic or political context. ### Survey evidence on PMR reforms and drivers of support - Survey scope and findings - 12,600 individuals across six countries. - PMR reforms surveyed in Mexico, Morocco, and South Africa (electricity and telecommunications sectors). - Drivers of support for PMR reforms: - Individual socioeconomic characteristics account for 6 percent of individuals’ support for PMR reforms. - Market-oriented beliefs account for 35 percent of policy views favoring PMR reforms. - Knowledge and perceptions of the effect of policies explain 37 percent of support for PMR reforms. - Respondents who believe productive activities should be handled primarily by private firms and that the government should not intervene in price-setting decisions support PMR reforms. - Respondents who perceive income distribution as unfair are less supportive; distributional concerns, together with trust and perceptions of corruption, weigh as much as individual characteristics in explaining support. ### Information treatments and causal effects (PMR-electricity and telecom) - Experimental design tested three hypotheses via randomized information treatments: - Status quo hypothesis: providing factual evidence on the cost, quality, and access to electricity or telecommunications services (costs of not reforming). - Effect-of-policies hypothesis: adding research-based evidence on the effect of policies to foster competition in network sectors on cost, quality, and access. - Empathy (for migrant integration): providing real-life narratives (used in migrant surveys). - Key treatment effects for PMR-electricity: - Status quo treatment: support increases by 4.5 percentage points for respondents who receive the status quo treatment (electricity sector; effect for telecommunications positive but not statistically significant). - Status quo + effect-of-policies treatment: - Share of respondents supporting PMR reforms increases by almost 16 percentage points, on average, across sectors. - Support rises from 41.4 percent in the control group to 57.1 percent among those who receive the treatment. - This additional support is equivalent to 46.7 percent of the share of respondents who oppose PMR reforms in the control group. - Interpretation: - Raising awareness of the need for reform positively affects support for PMR-electricity reforms. - Complementing need-information with research-based evidence on policy effects substantially increases support across both electricity and telecommunications sectors. - Information treatments work by addressing misperceptions about the effect of policies; treated respondents are significantly more likely to perceive competition in electricity and telecommunications as beneficial for consumers. ### Empathy, misinformation, and experimental effect sizes (Annex) - Empathy treatment (migrant surveys): - Appealing to empathy—highlighting real-life obstacles faced by immigrants—was effective in increasing support for migrant integration policies, but its effect was less pronounced than the “effect-of-policies” information treatment. - Misinformation risk: - Although misinformation campaigns can induce misperceptions and decrease policy support, this does not lessen the case for enhancing information efforts by policymakers seeking reform. - Experimental reporting: - Figure 3.6 (described) reports additional support relative to the control group in percentage points for various treatments (labels include “Status quo,” “Status quo + effect of policies,” “Effect of policies,” “Effect of policies + mechanism,” and “Immigrants’ stories” across PMR reform, Migrant integration, Telecom, Electricity). - Dark-blue bars denote differences statistically significant at the 90 percent confidence level according to regression analyses in Online Annexes 3.3.1 and 3.3.2. - Source of calculations: IMF staff calculations based on IMF-YouGov survey. ### Reasons for nonsupport and role of compensatory/complementary measures - Concern types and prevalence - When grouped by concern type, societal concerns play a much larger role than personal concerns in driving nonsupport. - For PMR reforms: - The two most cited concerns are consequences for the poorest households in terms of service affordability and access if private companies manage the sector. - Taken together, all societal concerns account for more than half of total responses. - Self-interest or personal concerns about price or quality of services or possibility of losing one’s job represent 22 percent of responses. - For migrant integration policies: - Primary reasons for nonsupport are concerns about fairness—“it is unfair to assist immigrants when many locals struggle to find jobs”—followed by worries that public services (hospitals, schools, public transport) may become overcrowded. - Self-interest concerns account for 30 percent of responses, with access to public services or housing featuring more prominently than jobs. - Potential of tailored measures - Although results are indicative rather than strictly causal, 50–80 percent of respondents in the control group initially opposed to PMR reforms indicate they would change their stance toward support if mitigating measures addressed their concerns (for example, creating an independent regulatory agency for utilities). - The share of respondents who would change their stance is generally somewhat lower for those initially against migrant integration policies, but still sizable, at about 50 percent on average. - Individuals who would still oppose reforms mainly cite lack of trust in parties involved and doubts about institutions’ ability to implement reforms or mitigating measures effectively. - OECD (2024) evidence: on average, only 39 percent of the population in a country finds it likely that the government will clearly explain how individuals will be affected by a reform; shares are lower in countries where trust in government is weaker. - Complementary policies that would significantly increase support include international coordination and cooperation (example: EU Temporary Protection Directive combined with member states’ policies to remove labor market barriers). ### Lessons from 11 country reform episodes (Employment Protection Legislation focus) - Country cases and outcomes (Table 3.2 summary) - Bolivia (1985) — LIC — Reversed in 2006 - Brazil (2017) — EME — Implemented with some resistance - Denmark (1990s) — AE — Implemented and sustained - France (2015–17) — AE — Implemented with some resistance - Georgia (2006) — LIC — Reversed in 2013 - Germany (2003–05) — AE — Implemented with some resistance - India (2014–2020) — EME — Legislated in 2020 but not yet fully implemented - Korea (2016) — AE — Largely withdrawn as a result of resistance - Mexico (2012) — EME — Implemented and sustained - Peru (2008) — EME — Implemented with adjustments - Vietnam (2012) — LIC — New labor code enacted in 2012 and sustained - Approaches that helped garner consensus - Securing explicit electoral mandates for reform (examples: France 2017 presidential agenda targeting 7 percent unemployment by 2022; India’s 2014 campaign on the “Gujarat model”). - Extensive communication with key stakeholders (Denmark’s continuous social dialogue and tripartite negotiations; contrasted with France’s 2016 El Khomri law adopted without prior negotiations and followed by protests). - Pilot cases to demonstrate benefits and build public confidence (Denmark; India’s state-level pilots in Gujarat and Rajasthan). - Policy research and international comparisons by independent researchers and international financial institutions (examples: IMF engagement on easing restrictive labor laws in India; IMF and OECD analyses on Germany and France). - Supplementing flexibility-enhancing reforms with compensatory measures—improved social security and unemployment benefits—used in Brazil, Denmark, France, Germany, and Korea. - Complementary measures to facilitate worker reallocation—enhanced active labor market policies and training programs—used in Denmark, France, Germany, and Vietnam. - Independent research institutes and think tanks contributed to policy evaluation and communication (examples: Germany’s RWI and ZEW during Hartz reforms; France Stratégie and CESE in France). - Design and sequencing - No single approach sufficed; nearly all successful episodes combined multiple strategies. - Incremental implementation often associated with sustainability (examples: Brazil focused on reducing labor litigation costs; India consolidated and standardized minimum wage regulations; France started with simplifying collective bargaining; Denmark extended reforms into the 2010s). - Pursuing multiple substantial reforms simultaneously tended to be less successful (examples: Bolivia and Georgia had reforms later reversed). ### Institutional design, dialogue, and trust - Communication must be supported by institutional frameworks that foster trust among stakeholders and the general population. - Independent policy research bodies can build awareness and achieve consensus (examples cited: CPB Netherlands Bureau for Economic Policy Analysis; Productivity Commission in Australia; Conseil d’orientation des retraites in France). - Dialogue needs to be two-way: consultation with stakeholders and their involvement in the reform design stage plays a key role for reform sustainability. - Policymaking toolkits policymakers are scaling up: - large-scale surveys, - scenario planning, - participatory budgeting, - laboratories to evaluate policies through focus groups and pilots (example: the Avalua·lab in Valencia), - open town hall meetings (example: the Grand débat national in France), - new civic technologies such as digital community engagement platforms. - Examples of trust-building mechanisms: - The Islamic Republic of Iran handed out cash transfers ahead of phasing out subsidies in a 2010 reform; visible deposits raised confidence regarding the compensation plan. - Countries leveraging early engagement and effective communication typically have high mutual trust rooted in decades of dialogue among social partners. - Governance and sequencing: - Strengthening governance—rule of law, controlling corruption, impartial public administration—is critical to successful passage of second-generation reforms. - IMF program design should reflect the role of governance reforms in enabling product and labor market reforms. ### Box: Policies to facilitate integration of Ukrainian refugees into the EU labor market (early evidence) - Immigration into the EU reached a historic high in 2022—driven by more than 4 million refugees from Ukraine—and remained above prepandemic levels in 2023. - About two-thirds of jobs created between the end of 2019 and the end of 2023 were filled by non-EU citizens, even as the unemployment rate for EU citizens remained at record lows. - Available data suggest that Ukrainian refugees integrated into EU labor markets noticeably faster than previous waves of refugees. - Several countries have estimated employment rates among Ukrainian refugees at about or above 50 percent, which is usually achieved only five or more years after arrival (OECD 2023). - Supporting factors: - EU Temporary Protection Directive (TPD) provided immediate protection and rights across countries, including residency rights, access to housing and social welfare assistance, medical or other assistance, and means of subsistence. - Many EU member states removed barriers to ensure access to the labor market, simplified entry requirements for certain regulated professions, and provided language courses, skills validation and recognition of qualifications, skills mapping, financial incentives for employers to recruit TPD beneficiaries, and on-the-job training (EMN 2024). - Survey data show individuals displaced from Ukraine are highly educated, with most having a tertiary education (Caselli and others 2024). - Tight labor markets in many EU countries supported fast integration. - Remaining challenges: widespread worker overqualification and skills mismatches point to further room for improvement. - Policy lessons: - Granting asylum seekers early access to private and public sector labor markets and self-employment is a key prerequisite for speedy integration. - Availability of language courses is crucial. - Simplified entry requirements for certain regulated professions, skills validation, and recognition of qualifications are important elements for successful refugee integration. ### Policy recommendations and implications - Core policy implications - Implement policies that boost labor participation and facilitate reallocation of labor and capital to high-productivity firms and growing sectors. - Active use of multipronged strategies to build consensus is a more reliable predictor of implementation success than contextual factors alone. - Recommended strategies - Consultation and communication efforts to explain the need for reform and how policies work. - Mitigating measures to compensate those affected by reforms (compensatory and complementary policies). - Designing mechanisms to build trust in the reform process (examples: crowdsourcing, participatory budgeting, pilot cases). - Strengthening trust in public institutions through governance and anti-corruption reforms as advocated in IMF engagement with member countries. - Expanding policymaking toolkits to enable a more participative reform process (large-scale surveys, scenario planning, participatory budgeting, pilot labs, open town halls, digital engagement platforms). - Information and distributional strategies - Randomized survey experiments show certain communication interventions—informing people about the cost of not reforming and about the effects of policies—can shift perceptions and policy views. - Addressing distributional concerns, unintended side effects, and short-term costs requires additional strategies beyond information provision (tailored compensatory and complementary measures, credible implementation mechanisms). - Mitigating measures need not always be fiscal compensation; institutional frameworks and participatory mechanisms can build trust even in fiscally constrained environments. - IMF program design - IMF program design should reflect the role of governance reforms in enabling second-generation structural reforms in product and labor markets. *Source: Chapter 3, “Understanding the Social Acceptability of Structural Reforms,” World Economic Outlook: Policy Pivot, Rising Threats (October 2024).* ### Introduction ### ch03 - Introduction ### Overview - The global economy has been enduring a prolonged period of structural weakness, with medium-term prospects under current policies described as bleak. - The slowdown in global growth is attributed largely to aging populations, weak investment, and structural frictions that hinder the reallocation of capital and labor toward productive firms. - Structural transformations related to the green transition and technological changes will require significant investment and resource reallocation. - Policymakers are urged to advance structural reforms—updating rules and policies that shape how an economy operates—to boost productivity, employment, and growth. ### Objectives and guiding questions - The chapter pursues two intertwined objectives: (1) shed light on factors that influence the social acceptability of structural reforms, and (2) identify strategies, tools, and institutions that can enhance acceptability so reforms are passed, implemented, and sustained. - Core questions addressed: - Historical overview of reform episodes: How difficult has implementation been? How common and effective are communication, consultation, and mitigating measures? - Drivers of social acceptability: What determines individuals’ attitudes? Role of individual characteristics, economic self-interest, perceptions, and information? - Policy toolkit for consensus and sustainability: Can information strategies correct misperceptions and increase support? What other tools and institutions help forge consensus and sustain reforms? ### Main findings - Passing structural reforms has typically been challenging, but use of strategies to garner consensus is associated with higher chances of implementation. - The pace of reform efforts has more than halved since the global financial crisis of 2008–09. - Nearly 20 percent of policies aimed at increasing competition in the electricity sector were never implemented. - Almost 50 percent of policies providing incentives for workers to work longer were never implemented. - The macroeconomic or political context can matter but is not determinant; communication and consultation strategies and mitigating measures are more reliable predictors of implementation. - Beliefs and perceptions are key determinants of attitudes toward structural reforms. - Socioeconomic characteristics account for only 6 percent of individuals’ support for reforms to increase competition in network sectors and 11 percent for policies to integrate foreign-born workers (in the surveys used). - Individuals’ beliefs and perceptions explain about 80 percent of reform support. - Misinformation and misperceptions about how policies work account for about half of that support. - Communication, information strategies, and complementary/compensatory measures can shift policy views, especially when forged in a context of trust. - Randomized survey experiments show that providing information can correct misperceptions and increase support. - Explaining how policies work appears critical: in the chapter’s surveys, additional support for migrant integration policies in the group that received information about how those policies work was equivalent to more than 40 percent of the share of those in the control group who were opposed. - Tailored mitigating measures addressing self-interest, distributional, and societal concerns can improve acceptability. - Lack of trust in parties involved in reforms and in governments’ ability to implement policies and mitigating measures can undermine acceptability. - An expanded toolkit and strong institutional settings fostering two-way dialogue can help garner support and sustain reforms. - Independent, nonpartisan policy research and institutions have often been key to raising awareness and building consensus. - Consultations with stakeholders, including during policy design, help cement trust and advance enduring reforms. - Reforms not tailored to domestic conditions or pushed with multiple other major reforms often face implementation challenges or reversal. ### Social acceptability of reforms: a primer - Structural reforms modify acquired rights and economic rents to improve resource allocation, creating winners and losers. - Gains and losses are uneven across society and over time: costs often concentrated and immediate; gains diffused and slow. - Status quo appeal arises because costs are more salient and payoffs are uncertain. - Public resistance is not solely explained by objective economic self-interest (employment status, age, education); beliefs and perceptions—about policy effects and policymakers’ willingness/ability to implement—matter critically. - Lack of trust in compensation plans has derailed or complicated tax and subsidy reforms; if potential winners do not comprehend benefits, they may not support reforms. ### The challenge of implementing structural reforms: key facts - A new database tracks product and labor market reform episodes during 1996–2023. - Documented reform aims: (1) ease product market regulation to increase competition in the electricity sector (PMR-electricity), (2) provide incentives for labor participation among elder workers (elder LP), and (3) increase integration of foreign-born workers into labor markets (migrant integration). - Database constructed using text analysis of quarterly country reports from the Economist Intelligence Unit (EIU) covering 26 advanced economies, 36 emerging market economies, and 14 low-income countries. - Each country-year observation classified as: (1) no relevant reform under discussion, (2) reform under discussion but not implemented, or (3) reform implemented. - Reform intensity has declined over time in almost all policy fields and country groups. - Particularly sharp drop in PMR-electricity reform episodes when sample split around the global financial crisis. - Pace of elder LP reforms in advanced economies and emerging market economies has also slowed despite rising longevity. - Reduction in reform intensity coincides with an increase in social discontent (civil unrest, distrust in public institutions, dissatisfaction with democracy, lower voter turnout). - Historical implementation rates: - Only about 50 percent of all PMR-electricity and elder LP reforms discussed in advanced economies over the past three decades were eventually implemented. - Implementation rate for elder LP reforms in emerging market economies is comparable. - For PMR-electricity reform episodes, the share of implemented reforms is 90 percent for emerging market economies and for low-income countries. - Implementation rate for migrant integration reform episodes is about 80 percent across country groups. - A substantial share of reforms that are implemented are diluted or implemented amid resistance. *Source: Chapter 3, “Understanding the Social Acceptability of Structural Reforms,” World Economic Outlook: Policy Pivot, Rising Threats (October 2024).* ### 1. PMR-Electricity: Increase Private Participation and Competition ### 1. PMR-Electricity: Increase Private Participation and Competition ### Implementation outcomes and public resistance - Public resistance occurred in a substantial share of reform episodes: - roughly 22 percent of migrant integration episodes - 30 percent in the case of PMR-electricity episodes - as many as 40 percent for elder LP reform episodes - In many resisted episodes policymakers scaled down the scope of the reform: - nearly 40 percent of resisted elder LP reform episodes were scaled down - as many as 45 percent of episodes in the second half of the sample were scaled down - Reforms that were enacted but later reversed had a higher share that faced resistance when implemented. ### Strategies for building consensus - Two new indicators were used to assess consensus-building in reform episodes: - Use of consultation and communication strategies (consultations, hearings, referendums, independent communication agencies) - Use of complementary and compensatory measures (job training programs, temporary job protections, price subsidies, grandfathering clauses) - Use patterns across country income groups and reform areas: - Advanced economies resorted more often to consultation and communication strategies, and their use of compensatory measures has picked up significantly since the global financial crisis. - Emerging market economies and low-income countries relied more on complementary and compensatory measures, particularly in PMR-electricity reform episodes where subsidies or price controls were frequently part of policy packages. - Frequency: In a significant share of reform episodes (close to half, on average), the use of these strategies was not prominent enough to be captured in the data. ### Association of strategies with implementation success - Historical correlations (multinomial logit regressions) indicate: - These strategies are associated with a more than 6 percentage point increase, on average, in the likelihood of implementing proposed reforms across policy areas, with stronger effects for attempts facing resistance. - In episodes met with public resistance, reaching implementation is more likely when explicit efforts to consult or communicate with social stakeholders are used. - Use of compensatory and complementary measures is generally associated with a higher likelihood of implementing reform proposals in both resisted and less resisted episodes, with differences across reform areas. - Comparative explanatory power for predicting implementation likelihood (dominance analysis): - Reform strategies jointly explain about 28 percent of the implementation likelihood, on average, across different policy areas. - Macroeconomic context variables explain 16 percent, on average. - Political context variables explain 22 percent, on average. - Conclusion: Active use of consultation, communication, and mitigating strategies is a more robust predictor of implementation success than the macroeconomic or political context in which reforms are attempted. ### Survey evidence on attitudes toward PMR-electricity reforms - Survey scope: - 12,600 individuals across six countries. - PMR reforms surveyed in Mexico, Morocco, and South Africa (electricity and telecommunications sectors). - Drivers of support for PMR reforms: - Individual socioeconomic characteristics account for 6 percent of individuals’ support for PMR reforms. - Market-oriented beliefs account for a substantial share (35 percent) of policy views favoring PMR reforms. - Knowledge and perceptions of the effect of policies explain 37 percent of support for PMR reforms. - Respondents who believe productive activities should be handled primarily by private firms and that the government should not intervene in price-setting decisions support PMR reforms. - Respondents who perceive income distribution as unfair are less supportive; distributional concerns, together with trust and perceptions of corruption, weigh as much as individual characteristics in explaining support. ### Information strategies and causal effects on support - Experimental design tested three hypotheses via randomized information treatments: - Status quo hypothesis: providing factual evidence on the cost, quality, and access to electricity or telecommunications services (costs of not reforming). - Effect-of-policies hypothesis: adding research-based evidence on the effect of policies to foster competition in network sectors on cost, quality, and access. - Empathy (for migrant integration): providing real-life narratives (used in migrant surveys). - Key treatment effects for PMR-electricity: - Status quo treatment: support increases by 4.5 percentage points for respondents who receive the status quo treatment (electricity sector; effect for telecommunications positive but not statistically significant). - Status quo + effect-of-policies treatment: - Share of respondents supporting PMR reforms increases by almost 16 percentage points, on average, across sectors. - Support rises from 41.4 percent in the control group to 57.1 percent among those who receive the treatment. - This additional support is equivalent to 46.7 percent of the share of respondents who oppose PMR reforms in the control group. - Interpretation: - Simply raising awareness of the need for reform has a positive effect on support for PMR-electricity reforms. - Complementing need-information with research-based evidence on policy effects substantially increases support across both electricity and telecommunications sectors. - Information treatments work by addressing misperceptions about the effect of policies; treated respondents are significantly more likely to perceive competition in electricity and telecommunications as beneficial for consumers. *Source: IMF staff calculations.* ### Annex Table 3.3.2). The effect is stronger in particular ### ch03 - Annex Table 3.3.2). The effect is stronger in particular ### Empathy and Information Treatments on Immigration and Reform Support - The empathy hypothesis addresses negative attitudes driven by concerns about cultural and work ethic differences (Dennison and Dražanová 2018; Alesina, Miano, and Stantcheva 2023). - A treatment appealing to empathy—highlighting real-life obstacles faced by immigrants entering the labor market—was effective in increasing support for migrant integration policies, but its effect was less pronounced than the “effect-of-policies” information treatment. - Providing clear information on the impact of policies is particularly effective in increasing support for reforms. - Although misinformation campaigns can induce misperceptions and decrease policy support (for instance, Di Tella, Galiani, and Schargrodsky 2012; Alesina and Tabellini 2024), this does not lessen the case for enhancing information efforts by policymakers seeking reform. ### Experimental Evidence and Effect Sizes - The figure described (Figure 3.6) reports additional support relative to the control group in percentage points for various treatments (labels include “Status quo,” “Status quo + effect of policies,” “Effect of policies,” “Effect of policies + mechanism,” and “Immigrants’ stories” across policy areas such as PMR reform, Migrant integration, Telecom, Electricity). - Dark-blue bars denote differences statistically significant at the 90 percent confidence level according to regression analyses in Online Annexes 3.3.1 and 3.3.2. - Source of calculations: IMF staff calculations based on IMF-YouGov survey. ### Reasons for Nonsupport and the Role of Compensatory/Complementary Measures - When grouped by concern type, societal concerns play a much larger role than personal concerns in driving nonsupport (Figure 3.7). - For PMR (product market regulation) reforms: - The two most cited concerns are consequences for the poorest households in terms of service affordability and access if private companies manage the sector. - Taken together, all societal concerns account for more than half of total responses. - Self-interest or personal concerns about price or quality of services or possibility of losing one’s job represent 22 percent of responses. - For migrant integration policies: - Primary reasons for nonsupport are concerns about fairness—“it is unfair to assist immigrants when many locals struggle to find jobs”—followed by worries that public services (hospitals, schools, public transport) may become overcrowded. - Self-interest concerns account for 30 percent of responses, with access to public services or housing featuring more prominently than jobs. - Offering tailored complementary and compensatory measures can significantly foster support: - Although results are indicative rather than strictly causal, 50–80 percent of respondents in the control group initially opposed to PMR reforms indicate they would change their stance toward support if mitigating measures addressed their concerns (for example, creating an independent regulatory agency for utilities). - The share of respondents who would change their stance is generally somewhat lower for those initially against migrant integration policies, but still sizable, at about 50 percent on average. - Individuals who would still oppose reforms mainly cite lack of trust in parties involved and doubts about institutions’ ability to implement reforms or mitigating measures effectively. - OECD (2024) evidence: on average, only 39 percent of the population in a country finds it likely that the government will clearly explain how individuals will be affected by a reform; shares are lower in countries where trust in government is weaker. - Complementary policies that would significantly increase support include international coordination and cooperation (example: EU Temporary Protection Directive combined with member states’ policies to remove labor market barriers). ### Tools and Strategies from 11 Country Reform Episodes (Employment Protection Legislation focus) - Historical overview and 11 country cases examined (Table 3.2). Country cases, classifications, and reform status: - Bolivia (1985) — LIC — Reversed in 2006 - Brazil (2017) — EME — Implemented with some resistance - Denmark (1990s) — AE — Implemented and sustained - France (2015–17) — AE — Implemented with some resistance - Georgia (2006) — LIC — Reversed in 2013 - Germany (2003–05) — AE — Implemented with some resistance - India (2014–2020) — EME — Legislated in 2020 but not yet fully implemented - Korea (2016) — AE — Largely withdrawn as a result of resistance - Mexico (2012) — EME — Implemented and sustained - Peru (2008) — EME — Implemented with adjustments - Vietnam (2012) — LIC — New labor code enacted in 2012 and sustained - Multiple approaches that helped garner consensus and implement EPL reforms: - Securing explicit electoral mandates for reform (examples: France 2017 presidential agenda targeting 7 percent unemployment by 2022; India’s 2014 campaign on the “Gujarat model”). - Extensive communication with key stakeholders (examples: Denmark’s continuous social dialogue and tripartite negotiations; contrasted with France’s 2016 El Khomri law adopted without prior negotiations and followed by protests). - Pilot cases to demonstrate benefits and build public confidence (examples: Denmark’s pilot projects for paid leave arrangements and public employment services; India’s state-level pilots in Gujarat and Rajasthan). - Policy research and international comparisons by independent researchers and international financial institutions (examples: IMF engagement on easing restrictive labor laws in India; IMF and OECD analyses on Germany and France). - No single approach sufficed; nearly all successful episodes combined multiple strategies, especially where trade unions were politically influential yet fragmented or where multilevel agreements were required (e.g., India’s federal and state-level requirements). - Carefully crafted policy design mattered: - Involving social partners in negotiations during design stage (Denmark; Mexico’s parliamentary negotiations). - Supplementing flexibility-enhancing reforms with compensatory measures—improved social security and unemployment benefits—used in Brazil, Denmark, France, Germany, and Korea. - Complementary measures to facilitate worker reallocation—enhanced active labor market policies and training programs—used in Denmark, France, Germany, and Vietnam. - Independent research institutes and think tanks contributed to policy evaluation and communication (examples: Germany’s RWI and ZEW during Hartz reforms; France Stratégie and CESE in France). - Incremental implementation often associated with sustainability: - Examples: Brazil focused on reducing labor litigation costs; India consolidated and standardized minimum wage regulations; France started with simplifying collective bargaining; Denmark extended reforms into the 2010s targeting youth and long-term unemployment. - Conversely, pursuing multiple substantial reforms simultaneously tended to be less successful (examples: Bolivia and Georgia had reforms later reversed). ### Conclusions and Policy Implications - It is critical to implement policies and reforms that boost labor participation and facilitate reallocation of labor and capital to high-productivity firms and growing sectors. - Gaining social and political support to enact and sustain these reforms is challenging; active use of multipronged strategies to build consensus is a more reliable predictor of implementation success than contextual factors alone. - Effective strategies include: - Consultation and communication efforts to explain the need for reform and how policies work. - Mitigating measures to compensate those affected by reforms (compensatory and complementary policies). - Designing mechanisms to build trust in the reform process (examples: crowdsourcing, participatory budgeting, pilot cases). - Strengthening trust in public institutions through governance and anti-corruption reforms as advocated in IMF engagement with member countries. - Individuals’ views and social acceptability are driven largely by beliefs: trust in government and institutions, distributional concerns, and perceptions about policy effects on themselves and their communities. - Randomized survey experiments show that certain communication interventions—informing people about the cost of not reforming and about the effects of policies—can shift perceptions and policy views; however, addressing distributional concerns, unintended side effects, and short-term costs requires additional strategies beyond information provision. *Source: IMF staff calculations and analysis based on IMF-YouGov survey and country case reviews as presented in the chapter content.* ### CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS ### CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS ### Survey evidence on support for reforms - Undertaking necessary structural reforms raises awareness of the need for the reforms and increases support for policy change. - Trustworthy communication on the economic effects of policies is effective in correcting misperceptions. - Providing research-based evidence (for example, on the impact on crime rates of granting work permits to foreign-born workers) significantly boosts support for policies to facilitate these workers’ integration into labor markets. - Consistency of results across distinct policy fields and countries at different stages of development lends support to the general applicability of the survey experiments’ policy implications. - The main reason cited by respondents for ultimately not supporting policy change is lack of trust in the parties involved in the reform and skepticism about governments’ ability to implement an adequate reform or deliver mitigating measures. ### Institutional design, dialogue, and participation - An effective communication strategy must be supported by a strong institutional framework that fosters trust among all stakeholders and the general population. - Independent policy research bodies can build awareness and achieve consensus (examples cited: CPB Netherlands Bureau for Economic Policy Analysis; Productivity Commission in Australia; Conseil d’orientation des retraites in France). - Dialogue needs to be two-way: consultation with stakeholders and their involvement in the reform design stage plays a key role for reform sustainability. - Policymakers are scaling up toolkits to incorporate citizens’ views into policy design using: - large-scale surveys, - scenario planning, - participatory budgeting, - laboratories to evaluate policies through focus groups and pilots (for example, the Avalua·lab in Valencia), - open town hall meetings (for example, the Grand débat national in France), - new civic technologies such as digital community engagement platforms. - These tools can identify individuals’ concerns and find mitigating measures that increase reforms’ acceptability without always requiring fiscal compensation. ### Trust, mitigating mechanisms, and examples - Lack of trust can drive resistance to policy change even when benefits and mitigating measures are explained. - Some mechanism designs can reduce mistrust in specific reforms. Example: the Islamic Republic of Iran handed out cash transfers ahead of phasing out subsidies in a 2010 reform; although funds could not be withdrawn until the reform was implemented, visible deposits raised confidence regarding the compensation plan. - Changing deep-rooted values like trust is not an easy task and takes time (Tabellini 2008). - Countries that leverage early engagement and effective communication to unlock reform support typically have a high degree of mutual trust rooted in many decades of dialogue among social partners. ### Governance and reform sequencing - Previous IMF studies emphasized “first-generation” governance reforms—enhancing the rule of law, controlling corruption, and establishing an impartial public administration—for economic growth. - Findings in this chapter indicate that strengthening governance is also critical to the successful passage of second-generation reforms in product and labor markets. - The importance of carefully designing policy changes and advancing governance reforms to overcome trust deficits needs to be reflected in IMF program design. ### Box 3.1 — Policies to facilitate integration of Ukrainian refugees into the EU labor market: early evidence - The integration of immigrants into the EU labor market during 2022–23 was significantly faster than in the past. - Immigration into the EU reached a historic high in 2022—driven by more than 4 million refugees from Ukraine—and remained above prepandemic levels in 2023. - About two-thirds of jobs created between the end of 2019 and the end of 2023 were filled by non-EU citizens, even as the unemployment rate for EU citizens remained at record lows. - Available data suggest that Ukrainian refugees integrated into EU labor markets noticeably faster than previous waves of refugees. - Several countries have already estimated employment rates among Ukrainian refugees at about or above 50 percent, which is usually achieved only five or more years after arrival (OECD 2023). - Factors supporting fast integration: - The EU Temporary Protection Directive (TPD) provided immediate protection and rights across countries, including residency rights, access to housing and social welfare assistance, medical or other assistance, and means of subsistence. - Many EU member states removed barriers to ensure access to the labor market, simplified entry requirements for certain regulated professions, and provided language courses, skills validation and recognition of qualifications, skills mapping, financial incentives for employers to recruit TPD beneficiaries, and on-the-job training (EMN 2024). - Survey data show individuals displaced from Ukraine are highly educated, with most having a tertiary education (Caselli and others 2024). - A tight labor market in many EU countries supported fast integration. - Evidence of challenges: widespread worker overqualification and skills mismatches point to further room for improvement in immigrant integration policies. - Policy lessons from the recent experience: - Granting asylum seekers early access to private and public sector labor markets and self-employment is a key prerequisite for speedy integration. - Availability of language courses is crucial. - Simplified entry requirements for certain regulated professions, skills validation, and recognition of qualifications are important elements for successful refugee integration. ### Policy recommendations and implications - Effective reform design should involve thorough consultation and communication. - Expanding policymaking toolkits to enable a more participative reform process strengthens public understanding of reform proposals and reinforces trust in public institutions. - Participatory processes and credible, independent public bodies for policy analysis can increase social acceptance and successful implementation of policies. - Mitigating measures to increase acceptability need not always be fiscal compensation; institutional frameworks and participatory mechanisms can build trust even in fiscally constrained environments. - IMF program design should reflect the role of governance reforms in enabling second-generation structural reforms. *Source: CHAPTER 3 UNDERSTANDING THE SOCIAL ACCEPTABILITY OF STRUCTURAL REFORMS, World Economic Outlook: Policy Pivot, Rising Threats, International Monetary Fund | October 2024* --- _Source: https://www.imf.org/-/media/files/publications/weo/2024/october/english/ch03.pdf_