2006 OECD Economic Surveys: Luxembourg 2006

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This 2006 OECD review of Luxembourg's economy examines the challenges Luxembourg is facing with regard to slowing economic growth, public finances, employment, education achievement and product market competition. It finds that Luxembourg has regained its footing after a slowdown at the start of the decade and that the financial servies sector, which accounts for one-third of economic activity, has renewed confidence. But there is deterioration in the fiscal position, weakening of the pension system, and growing unemployment all of which could be improved through enhanced human capital development and strengthened product market competition.

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Improving Employment Prospects of Resident Workers

Despite renewed employment growth in Luxembourg, the unemployment rate has continued to rise with new jobs going almost exclusively to cross-border workers. High unemployment benefit replacement rates, generous social assistance and attractive entry-level conditions in the civil service have encouraged residents to hold out for higher wage rates than cross-border workers are willing to accept. Moreover, the public employment service (ADEM) has had difficulties in matching job seekers with jobs owing to its bureaucratic structure and antiquated assignment system. Unemployment mostly affects youths and the unskilled, but not so much older workers, who benefit from generous exit routes from the labour market – such as pre-pension and early retirement systems.

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