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Luxembourg GDP per capita still exceeds that of other advanced OECD countries by almost 50%, but the gap has been narrowing in the wake of the global financial crisis. Both productivity growth and labour utilisation have remained flat, while structural unemployment slowly decreased. Income inequality, as measured by the Gini coefficient, is below the OECD average. However, over the past few years disposable income has decreased for the poorest households. Greenhouse gas emissions per capita, while on a downward trend, are among the highest in the OECD. Progress in addressing past priorities identified in Going for Growth has been achieved in the area of social benefit system with the ongoing reform of the minimum income scheme and the introduction in 2018 of additional benefits available to low income groups such as early childcare vouchers and expanded housing assistance. Increased infrastructure investment would help to improve environmental outcomes and the quality of growth. Improvements in the education system and better access to lifelong learning would help to reduce skills mismatches, making growth more inclusive. More competition, especially in professional services and retail, would reinforce the diversification of the economy and medium-term improvements in productivity. Better land planning and stronger incentives to develop land available for construction would help meeting the increasing demand for housing. Growth performance, inequality and environment indicators: Luxembourg Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate
A. Growth
Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio
2012-18 0.7 0.3 -0.2 0.1 0.5 0.2 0.1 0.1 0.2
Level
Annual variation (percentage points)
2016 30.4 (31.7)*
2015-16 -0.1 (0)*
30
7.9 (7.6)*
-0.1 (0)*
20
2016 16.4 (10.9)* 0.2 (0.3)* 0.0
Average of levels 2010-16 19.9 (11.3)* 0.2 (0.3)* 0.0
B. Inequality and environment
Gini coefficient3 Share of national disposable income held by the poorest 20%
GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)
C. Income and productivity remain well above the average of leading countries
2002-08 1.9 1.7 0.3 -0.3 1.6 0.1 0.1 0.0 0.1
Per cent 80 70
Gap to the upper half of OECD countries5 GDP per capita
GDP per hour worked
60 50 40
10 0
Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases. StatLink 2 https://doi.org/10.1787/888933955161
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Policy indicators: Luxembourg B. There are disincentives to work at older age
A. Grade repetition is high
%
Changes in net pension wealth for an additional year in employment,¹ 2016
Share of 15-years old who repeated a year at least once, 2015
%
35
1.2
30
1.0
25
0.8
20
0.6
15
0.4
10
0.2
5 0
LUXEMBOURG
Advanced economies
EU
LUXEMBOURG
Source: Panel A: OECD, PISA Database; Panel B: OECD, Pension Models.
Advanced economies
EU
0.0
StatLink 2 https://doi.org/10.1787/888933956035
Beyond GDP per capita: Luxembourg A. Inequality is close to the median of advanced economies Gini coefficient, 2016 or last available year¹
SVK, 24.1
LUXEMBOURG, 30.4
ZAF, 63.0
Advanced economies median, 29.7
Emerging economies median, 46.2
B. Exposure to fine particulate matter is higher than in advanced economies Percentage of population exposed to PM2.5, 20172
% LUXEMBOURG Advanced economies
< 10 μg/m³ 10-35 μg/m³
Emerging economies
> 35 μg/m³
World 0
10
20
30
40
50
60
70
80
90
100
Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database. Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter. StatLink 2 https://doi.org/10.1787/888933956909 ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019
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Luxembourg: Going for Growth 2019 priorities Improve the ability to respond to future skill needs. Skill shortages and mismatches limit labour productivity growth and constrain firms’ ability to innovate. •
Actions taken: The 2017 law on secondary education gave schools more autonomy in organising the curriculum. New training programmes for job seekers developed by the Public Employment Service aim at improving digital skills. Lifelong learning availability was enhanced by the Second Chance School that offers training comparable to the last year of upper secondary education.
•
Recommendations: Reduce grade repetition in secondary education, provide more school autonomy and better monitor education quality. Improve the quality and accessibility of vocational training. Enhance the apprenticeship system to reduce structural unemployment and address skill mismatches. Strengthen the co-operation between enterprises and research institutions in Luxembourg and abroad.
Facilitate labour market participation of women and older workers. Reducing disincentives for labour market participation can increase labour supply and therefore economic growth. •
Actions taken: Recent tax reform enabled couples to opt for individual taxation starting from 2018, reducing work disincentives for second earners. Increased public investment in early childhood education and care has improved affordability. One early retirement scheme (so-called “préretraite de solidarité”) was phased out in July 2018, but conditions for other schemes, including for shift and night workers, were eased.
•
Recommendations: Reduce disincentives for labour force participation of women by charging health care contributions for each spouse individually and introducing fully separate income tax assessment of spouses. Increase enrolment in early childhood education, especially of low-income and foreign-language families. Abolish early retirement schemes so as to raise the effective retirement age. A new pension reform should include limited credits for time spent outside work, more actuarial neutrality around the statutory retirement age and indexation of the latter to longevity.
Increase competition in the non-financial services sector. Restrictive regulations hinder competition and hence investment and productivity growth •
Actions taken: Some administrative procedures have been streamlined by the so-called Omnibus law entering force in 2018 and restrictions governing sales in the retail sector reduced.
•
Recommendations: Remove regulatory restrictions in retail trade and business services, such as restrictions on advertising for architects and engineers, and facilitate co-operation between professions. Review the necessity and proportionality of restrictions on the access and conduct of regulated professions. Make shop opening hours more flexible.
Improve the functioning of the housing market. Better supply of housing is needed to meet the increasing demand due to population growth. •
Actions taken: The social housing programme has been extended, in order to expand the supply of affordable housing. Eligibility criteria for households to receive a rent subsidy have been relaxed in 2018.
•
Recommendations: Increase housing supply by improving development of land available for new construction and speeding up procedures for granting construction permits. Increase the supply of social housing at affordable prices. Raise property taxes by updating property values used as the tax base. Reduce implicit tax subsidies to home ownership and incentives to hoard building plots.
ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH © OECD 2019
124 | *Increase infrastructure investment to improve environmental outcomes. Traffic congestion and air pollution weighs on well-being and limits growth. â&#x20AC;˘
Recommendations: Improve cross-border railway connections and transport infrastructure. To limit traffic congestion and air pollution, increase taxes and excise duties on transport fuel and explore the introduction of a system of congestion charges. Invest in smart electricity grids and better interconnectivity in electricity and gas markets. Use better interconnections to tap into the supply of renewable energy in neighbouring countries.
* New policy priorities identified in Going for Growth 2019 (with respect to Going for Growth 2017). No action can be reported for new priorities.
ECONOMIC POLICY REFORMS 2019: GOING FOR GROWTH Š OECD 2019