Given high labour costs, Switzerland needs to maintain a top position in innovation to preserve its competitiveness and a high living standard. Despite some weakening in the 1990s, partly due to sluggish trend growth, the Swiss innovation performance has been very strong. There are, however, areas in which reforms could strengthen innovation. Slow labour productivity growth and mixed results in entrepreneurship surveys suggest that the innovativeness of some parts of the economy could be improved, especially regarding small enterprises in sheltered services sectors.