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Germany has been enjoying strong economic performance in recent years, building on strengthened domestic demand, good social outcomes and export performance. Exports have benefited from a large, productive and innovative manufacturing sector which has reinforced its position in sectors of long-standing comparative advantage, notably cars, chemical products and machine tools. Record-low unemployment, employment growth and real wage gains have underpinned private household demand. Business investment is picking up.
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This chapter reviews policies to strengthen Germany’s productivity growth and prepare for changes in labour markets brought about by new technologies. The chapter also discusses how social protection and the bargaining framework should be reformed for the future of work. Germany enjoys a relatively high labour productivity level but productivity growth has been modest in recent years. There is room to boost productivity growth by accelerating the diffusion of new technologies throughout the economy. Vigorous entrepreneurship and innovation by small and medium enterprises are key for such technology diffusion while strong broadband and mobile networks widen the scope of data-intensive technologies that can be exploited to increase productivity. Widespread use of new technologies will bring about significant changes in skill demand and work arrangements. As in many countries, Germany saw a decline in the share of middle-skilled jobs in employment. A relatively high share of jobs is expected to be automated or undergo significant changes in task contents as a result of technological change. New technologies are also likely to increase individuals engaging in new forms of work, such as gig work intermediated by digital platforms. Such workers are less covered by public social safety nets such as unemployment insurance than regular employment.
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Cognitive skills, such as reading and numeric skills, are key determinants of wages, employment and long-term economic growth. Good cognitive skills also reduce poverty risk and improve non-material wellbeing, such as health and social cohesion. Non-cognitive skills, such as skills to use information and communication technology as well as managerial skills, also help workers adapt to new technologies and globalisation. In Germany cognitive skills among adults are above OECD average, but weaker than in leading economies, especially among individuals with low and middle qualifications. Much progress has been made to improve learning outcomes of youth with disadvantaged socio-economic background. Nonetheless, high-quality childcare, early childhood and full-day primary education still need to expand. The vocational education system is very successful in integrating young people well in the labour market. Strengthening general education within the successful vocational education and training system could help ensure the capacity of graduates to adapt to technological change at higher age in the future. Participation in life-long learning could be encouraged by better addressing individual training needs. This could improve prospects for adults without professional qualifications. Women’s skills are used less well than men’s, calling for policies to address gender imbalances in the labour market.