Raising Productivity Growth, While Maintaining Strong Job Creation

Since the mid-1990s, employment has expanded at a remarkable pace, while the unemployment rate declined from its peak in the early 1990s to about 10.5% at the end of 2004, although this is still one of the highest rates in the OECD. Several interrelated factors have underpinned strong job creation, including very favourable monetary conditions and the arrival of a large number of immigrants, who have mostly taken jobs in a few low productivity sectors. Labour market reforms have also played a role, especially those implemented in 1997 that lowered severance payments and social security contributions for some workers. But labour market institutions, including employment protection legislation, active labour market policies and unemployment benefits, still require comprehensive reforms to push unemployment down further, while fostering a better productivity performance. Reforms of the education system and firm training, and the promotion of business R&ampD activities through better framework conditions are also essential to improve the productivity record.