copy the linklink copied!Executive summary

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

copy the linklink copied!The time for reform is now

Slow growth, high global uncertainty and perceptions of a lack of equality of opportunity should prompt policy makers to act in order to revive the global economy. The weakening of growth comes at a time when globalisation, digitalisation, population ageing and environmental degradation are key forces shaping economic developments. Addressing domestic reform priorities is a necessary condition for making the most of such megatrends and requires governments to carefully select, prepare, prioritise and implement structural reforms.

In times of weakening global growth there is a case for prioritising reforms that boost short-term demand. This can be done by combining reforms in packages, appropriate sequencing as well as co-ordinating with macroeconomic policies.

copy the linklink copied!Going for Growth advises how to achieve strong, inclusive and sustainable growth

Going for Growth identifies the Top 5 national reform priorities for the coming two years. Pursuing this country-specific policy agenda will boost productivity, employment and incomes across the distribution in OECD countries and key emerging-market economies in the medium-to-long term. The reform priorities are identified using a combination of quantitative analysis and OECD country-specific expertise (Box A). Going for Growth also provides detailed policy recommendations on how to address each of the Top 5 priorities and tracks recent reforms in these areas.

The scope of Going for Growth has widened over the years, reflecting OECD’s increasing focus on the quality of growth. In 2017, the inclusiveness dimension was integrated in the Going for Growth framework. In this 2019 edition the environmental sustainability of growth has become part of the process of selecting national priorities and recommending actions.

copy the linklink copied!Reviving productivity growth is crucial for boosting incomes in the long term

More than ten years after the global financial crisis GDP per capita in the majority of countries is on a lower growth path as compared to pre-crisis trends (Figure A). This mainly reflects weaker productivity growth (Table A). In many countries, particularly advanced economies, the contribution of labour utilisation (hours worked per capita) to GDP growth has been relatively strong due to rising labour force participation, in particular of older workers. While there is scope to further boost labour force participation, productivity growth will be crucial to sustain increases in living standards in the longer term.

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Figure A. GDP per capita is on a lower growth path than before the crisis
GDP per capita in thousands USD, constant 2010 prices and PPPs
Figure A. GDP per capita is on a lower growth path than before the crisis

Source: OECD, Economic Outlook Database.

 StatLink https://doi.org/10.1787/888933954116

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Table A. Productivity growth has been slowing
Rate of growth, in %

 

Labour productivity

Labour utilisation

 

1995-2001

2002-08

2012-18

1995-2001

2002-08

2012-18

Advanced economies

2.4

2.0

1.0

0.7

0.8

1.1

Emerging-market economies

.

4.1

2.1

.

0.3

0.1

Note: Simple averages.

Source: OECD, Economic Outlook and Productivity Databases.

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Box A. Going for Growth reform priority selection: A combination of quantitative analysis and country-specific expertise

The Going for Growth framework is anchored in a decomposition of GDP growth into labour productivity and labour utilisation. Since 2017, two new dimensions have been added to the Going for Growth exercise. These are inclusiveness and, in the current 2019 edition, environmental sustainability. The new dimensions rely on dashboards of the best available outcome and policy indicators to guide the identification of national priorities.

The identification of Top 5 priorities to boost longer-term living standards relies on a combination of quantitative analysis and country-specific expertise to identify the policy priorities (see Diagram).

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In the first step, indicators of economic outcomes (e.g. total factor productivity growth or female employment) are linked in pairs to relevant policies addressing them based on empirical evidence (e.g. anti-competitive product market regulation or childcare-related costs in the tax and benefit system). Then, an outcome-policy pair is compared to the OECD average to identify poor performance on both policies and outcomes.

In a second step, OECD country-specific expert judgement is used to select the actual Top 5 priorities. Priority candidates identified in the first, quantitative step, are compared with other areas relevant for growth, which may not have been well measured or not straightforward to compare. For each of the Top 5 priorities, detailed reform recommendations are formulated and actions on them are reported.

The productivity slowdown goes back to before the crisis. But since the crisis, it has become more pronounced and more widespread (Table A). Weak productivity growth is due to both lower investment and lower multi-factor productivity growth. Structural explanations include a decline in business dynamism, a slowdown in investment in knowledge-based capital and in the diffusion of new technologies and management practices from best-performing firms, as well as persistent skill mismatches.

Employment rates are close to pre-crisis levels, yet not enough people are employed in good quality jobs (Figure B). Unemployment rates are close to historically low levels in many countries, with signs of labour shortages, particularly for high-skilled workers. Still, unemployment remains high in some countries (e.g. Greece, Spain, France, Italy and Turkey). In addition, the quality of jobs has not kept up with the quantity, as a significant share of new jobs, particularly in Europe, are involuntary part-time or on fixed-term contracts with more limited social protection. Informality is significant in most emerging-market economies.

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Figure B. Employment has been recovering strongly in most advanced economies
Employment to population ratio, %
Figure B. Employment has been recovering strongly in most advanced economies

Notes: ILO modelled estimates. 15 years old and over.

Source: ILO, Key Indicators of the Labour Market Database.

 StatLink https://doi.org/10.1787/888933954135

In many advanced economies, low-income households have seen their real incomes stagnate or even fall over the past decade (Figure C). This was the case in particular in European countries hit hard by the crisis.

More generally, over the past two decades, in many OECD countries average wage growth has not kept up with productivity growth, and low and median wages have lagged even further behind, contributing to rising wage inequality.

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Figure C. In many OECD countries, low-income households have seen little income growth since the crisis
Index 1995 = 100
Figure C. In many OECD countries, low-income households have seen little income growth since the crisis

Note: Unweighted average for 19 OECD countries.

Source: OECD (2019), Under Pressure: The Squeezed Middle Class.

 StatLink https://doi.org/10.1787/888933954154

In many emerging-market economies poverty and inequality have fallen in the past decade, but they remain high (Figure D). Looking forward, durable reductions in inequality in both advanced and emerging-market economies require all individuals to have equal opportunities to access education, health care and formal jobs.

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Figure D. Inequality is still very high, in particular in emerging-market economies
Gini coefficient, disposable income
Figure D. Inequality is still very high, in particular in emerging-market economies

Notes: Emerging-market economies exclude India and Indonesia. 2016 or last available year.

Source: OECD, Income Distribution Database; World Bank, World Development Indicators; China National Bureau of Statistics.

 StatLink https://doi.org/10.1787/888933954173

copy the linklink copied!The pace of reforms is not fast enough

The take-up of structural reforms has moderated. In the aftermath of the global crisis the appetite for reform was high. Responding to the urgency and acting in combination with monetary and fiscal support, both advanced and emerging-market economies stepped up reform action (Figure E). While the benefits of these reforms are still materialising, the pace of reform has receded and stabilised at pre-crisis levels, implying a lost opportunity to boost growth.

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Figure E. The pace of structural reforms is below the post-crisis peak
Responsiveness rates to Going for Growth recommendations, %
Figure E. The pace of structural reforms is below the post-crisis peak

Note: Simple average across countries.

 StatLink https://doi.org/10.1787/888933954192

copy the linklink copied!The moderate reform pace in 2017-18 masks diverging cross-country developments

In advanced economies, recent reforms focused on fostering full-time employment and labour market participation, for example through increased provision of quality childcare and reducing tax wedges. For example, the Czech Republic, Germany and Japan have continued to expand childcare facilities. Japan and Korea passed new legislation aimed at limiting overtime work and improving work-life balance.

Reforms to boost formal employment, including of women, have been pursued in emerging-market economies. These include improving skills and training, labour mobility and social security, reducing tax wedges on labour income, simplifying minimum wages and improving wage bargaining. For example, in 2018 Costa Rica implemented its National Strategy to Transition to a Formal Economy and slightly reduced the number of minimum wage rates. In the area of health and social security coverage, China made progress on bridging the rural/urban divide in its health system by increasing the portability of health insurance, while India launched a national health protection scheme targeting 100 million poor families.

Important labour market reforms were adopted in France, in particular regarding collective wage bargaining, unemployment benefits and job search controls. Greece and Italy rolled out nationwide anti-poverty benefit schemes.

There has been a significant increase in reforms of tax systems and tax collection, including the introduction of the Goods and Services tax in India, progress on the reduction of provincial revenue-based taxes in Argentina and lowering of corporate taxation in the United States. Poland, Spain and Greece took significant steps to improve revenue collection, particularly through increased use of ICT in filing and tracking systems, as well as by improving enforcement.

copy the linklink copied!Pro-growth policies should be designed so that they promote equal opportunities

Going for Growth 2019 lists the main forward-looking reform priorities (Exhibit 1). A cross-cutting theme in the 2019-20 Top 5 reform priorities to boost growth is to ensure the equality of opportunities, both across the population and across firms.

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Exhibit 1. Going for Growth 2019 priorities across main policy areas
Exhibit 1. Going for Growth 2019 priorities across main policy areas

Note: The blue boxes indicate priorities primarily targeting labour productivity and the green ones indicate priorities primarily targeting labour utilisation. This distinction is only approximate, as many priority areas, e.g. education, can impact both labour productivity and labour utilisation.

 StatLink https://doi.org/10.1787/888933954211

For current and future workers, many reform priorities aim at providing equal access to education, training and jobs, regardless of background. In particular, priorities to improve the quality and accessibility of education, including vocational training, have gained prominence in Going for Growth over the years and are now among the top priorities in both advanced and emerging-market economies (Figure F).

The recommendations include measures to improve the quality of education and its responsiveness to current and future skills demand, in particular in vocational training (e.g. Brazil, Chile, Costa Rica, France, Greece, Hungary, Italy, Lithuania and Spain). Access to primary and higher education is also among the top ranking priorities to improve the inclusiveness of the education system for disadvantaged groups – in particular native populations – in countries like Australia, Mexico, New Zealand and the Slovak Republic.

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Figure F. Reforms in many priority areas will improve the equality of opportunity for workers
Main priority areas that would directly improve the equality of opportunities for workers, % of total 2019 priorities
Figure F. Reforms in many priority areas will improve the equality of opportunity for workers

 StatLink https://doi.org/10.1787/888933954249

Enhancing incentives for women to fully participate in the labour market is also high on the agenda, particularly in advanced economies. This is the case, for example in Korea and Japan, where the challenge of rapid population ageing is particularly pressing. Recommendations include improved childcare provision, parental leave policies and phasing out joint income taxation of spouses. A better design of social protection and benefit schemes, and activation policies are crucial to make sure that incentives and opportunities to work are preserved for often disadvantaged groups, such as younger and older workers, minorities and migrants (e.g. Belgium, Denmark and Sweden). A key set of priorities concerns reducing labour market dualism and encouraging formal employment in emerging-market economies.

Finally, a well-designed tax and benefit system prevents high wealth and market income inequality from translating into high inequality in disposable income and, in turn, into the inequality of opportunities. In this respect, shifting away from taxes on labour, especially on low incomes, towards the taxation of property is a priority in countries such as Austria, Denmark, Latvia and Norway. Also reforming the tax and transfer system to remove disincentives to work is a priority in Finland, Iceland, Ireland, Poland, the Slovak Republic and Slovenia.

copy the linklink copied!A level playing field for firms will foster competition, innovation and productivity

Opening up markets to entry, competition and foreign trade and investment remains among the most frequent Going for Growth priorities across countries, even if it is less prevalent than some 15 years ago.

In this respect, key recommendations include reducing economy-wide administrative burdens and the strengthening of competition laws and administration, as for example in Belgium, Greece, Mexico and the European Union. Reducing barriers to entry and competition in network sectors (energy, telecommunications and transport), professional services (in particular in advanced economies) and retail trade are also high on the agenda (e.g. in Austria, Canada and Luxembourg). Lowering implicit and explicit barriers to trade and FDI is a priority in particular in emerging-market economies.

Addressing infrastructure bottlenecks and improving access to public services are important priorities in both advanced and emerging-market economies. Efforts in these areas can expand the possibilities for individuals, firms, cities and regions to access markets and to improve growth and living standards. For example, improving transport infrastructure is a priority for many advanced and emerging-market economies, while improving access to high-speed broadband is a key recommendation for Germany and the United States. Water, sanitation and electricity infrastructure are crucial to boost inclusive growth in India. Infrastructure investment is recommended as a means to reduce regional development differences in emerging-market economies like Argentina, Brazil, Colombia, Indonesia, as well as in advanced economies such as in Germany, the United Kingdom and the United States.

Finally, a sound judiciary system and a strong rule of law are conditions for the effective implementation of reforms and in particular for ensuring a more level playing field. This is a key priority in China, Greece, Indonesia, Italy, Mexico, and Russia. Recommendations span measures to fight corruption, strengthen and streamline judicial procedures, and improve public procurement, particularly in advanced economies.

Innovation policies need to support radical innovation and the diffusion and adoption of new technologies. More competition can provide incentives and conditions for innovation and in particular the diffusion of technologies to laggard firms. In parallel, public innovation support is high on the priority list for both advanced and emerging-market economies. Examples include improving collaboration between businesses and education and research centres (e.g. Colombia, Estonia, Lithuania, Portugal), reassessing the effectiveness of available support, improving the co-ordination between different public bodies involved in innovation policies, and striking a better balance between R&D subsidies and tax incentives (e.g. Czech Republic, Ireland, the Netherlands, New Zealand, Spain and the United Kingdom).

copy the linklink copied!Growth has to be environmentally sustainable

Crucially, the gains in growth and well-being need to be sustainable in the long term. The natural environment, which underpins the very foundations of any economic activity and life itself, is under increasing pressure. Urgent action is required now to prevent environmental degradation and its associated long-term effects. For example, air pollution is contributing to millions of premature deaths annually worldwide. Greenhouse gas emissions are off track from the globally-agreed zero net emission targets for the second half of the century (Figure G). Other pressing areas include waste, oceans and biodiversity loss.

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Figure G. Curbing greenhouse gas emissions is a major challenge
Greenhouse gas emissions from fuel combustion (Mt of CO2 equivalent)
Figure G. Curbing greenhouse gas emissions is a major challenge

Source: International Energy Agency, Energy Database.

 StatLink https://doi.org/10.1787/888933954268

For the first time, the 2019 Going for Growth explicitly includes environmental sustainability considerations when setting national priorities and recommending policy actions. As a result, 11 countries and the European Union have an explicit reform priority to address environmental performance. For example, tackling pollution is now among the Top 5 policy priorities in China. In Australia and the European Union climate change mitigation is a priority. Turkey, Iceland and Japan have general priorities on environmentally-sustainable growth, while Estonia, Israel, India, Luxembourg and Poland have priorities related to more environmentally-sustainable infrastructure investment and use. Indonesia has a priority on phasing out fossil fuel subsidies.

Additionally, many countries have pro-growth priorities where the recommended reform actions would improve the environmental sustainability of growth.

The detailed recommendations that can improve the environmental sustainability of growth include increasing reliance on environmental taxation (e.g. Austria, Canada, Germany, Finland, Iceland, Japan and Poland) and the pricing of infrastructure use, access and related environmental externalities (e.g. India, New Zealand, the United Kingdom and the United States). The European Union and several advanced economies have priorities to phase out subsidies to agricultural production, in particular those that encourage intensive agriculture. To the extent that such reforms may have adverse distributional impacts, they will need to be combined with adequate compensatory measures. Additionally, improving public transport, investment in more sustainable energy or water infrastructure is recommended in Costa Rica, Greece, India, Turkey, the United Kingdom and the United States.

copy the linklink copied!Domestic reforms need to be combined with multilateral action

In a number of cases, to ensure efficient and effective outcomes domestic policies need to be supported by multilateral co-operation. Prominent examples where efforts to restore a multilateral, rules-based system are crucial include climate change, tax evasion and profit shifting, competition, trade and migration.

Disclaimer

This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries.

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Photo credits: Cover designer by Andrew Esson | Baseline Arts Ltd.

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Executive summary