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2017 OECD Economic Surveys: Switzerland 2017

image of OECD Economic Surveys: Switzerland 2017

Switzerland continues to provide its citizens with a high standard of living. The economy has shown considerable resilience, most recently to the exchange rate appreciation in 2015. Nevertheless, growth has been too slow to absorb spare capacity or raise income per capita meaningfully. Unconventional monetary policies have helped return inflation to positive territory, but pose other risks. Fiscal policy is sound, and the federal fiscal rule has helped lower public indebtedness but it implies that spending priorities must be funded from other areas. Labour productivity growth has been falling since the late-1990s to be one-third of the OECD average rate in the past decade. Swiss R&D and innovation are top-ranked but need to be more widespread. Frontier firms’ labour productivity has diverged from the rest. The Swiss education and training system is well regarded and has contributed to high employment rates. However, it is being increasingly challenged by the ever-growing demand for high-skilled workers along with the changing nature of work. Maintaining and raising living standards will require policies to restore productivity growth and ensure that the skills training and lifelong learning system is nimble.

SPECIAL FEATURES: BOOSTING PRODUCTIVITY; MEETING SKILLS NEEDS

 

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Boosting productivity in Switzerland

Swiss GDP per capita stands amongst the top OECD performers. However, to face medium-term challenges productivity developments will be key to allow the country to maintain its enviable position. Recent trends have not been favourable, with productivity growth underperforming peer countries. Based on macroeconomic analysis and supported by firm-level data, results point to a significant role for competition, innovation, education, firm characteristics and entrepreneurship. The regulatory environment is a crucial element driving productivity and could explain some of the differences across cantons. It is also an important factor for productivity differences across sectors. Other issues weighing on Switzerland’s future performance include risks from ageing, which can have major consequences on productivity via its influence on economic sectors and also via the age structure and the evolution of productivity through working life. Fully utilising the potential of underrepresented population segments would also be beneficial, notably encouraging full-time participation of women and better integrating immigrants. More enterprise creation could be achieved with increased entrepreneurship education, expanded non-bank financing and a reduced regulatory burden. R&D, while an obvious success in Switzerland, has apparently not produced commensurate returns in output. Diversification, more knowledge sharing, a stronger role for higher education institutions and promotion of start-ups would help reinforce the links from R&D to productivity.

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