Many OECD countries undertook important structural reforms in the wake of the global financial and economic crisis. Despite the long-run improvements in well-being that such reforms are likely to bring, they often face strong opposition, particularly in the case of labour market reforms. This chapter describes the factors that make reform happen and the policies that can help support the reform process. Good economic times are the best time for reforms, since then their benefits materialise more quickly. In practice, however, reforms are often undertaken in downturns, when the perceived urgency of reforms, but also their short-term costs are greater. Another political economy consideration is that many reforms create winners and losers in the labour market and affect the distribution of income. Appropriate design and complementary policies can mitigate these potential downsides of reforms to enhance political support.

This chapter uses the Jobs Strategy framework to discuss how emerging economies can confront the dual challenge of low productivity and inclusiveness in a context of widespread informality. Pervasive informality implies that large parts of the workforce do not have access to social insurance or basic regulatory protections. It also limits the ability of the government to collect taxes and hence the resources at its disposal to confront the challenge of promoting inclusive growth. A comprehensive approach is needed that simultaneously promotes formality and reaches out to the most vulnerable.

This chapter provides guidance for developing country-specific policy recommendations from the broad policy principles of the new OECD Jobs Strategy. To this end, it provides an illustrative procedure to identify countries’ main policy challenges and develops broad policy packages to address them. It also highlights the importance of considering countries' initial conditions – in terms of the state of the business cycle, fiscal and administrative capacity, past reforms, preferences and demography – for tailoring policy recommendations to country specific priorities, capabilities and needs.