Presentation of the 2018 OECD Economic Survey of Germany

2018 OECD ECONOMIC SURVEY OF GERMANY Sustaining strong and inclusive growth Berlin, June 12th 2018 http://www.oecd.org/eco/surveys/economic-survey-germany.htm

@OECDeconomy @OECD

Wellbeing is high OECD Better Life Index, 2017 Germany

Subjective wellbeing

OECD Income and wealth 10.0 8.0

Jobs and earnings

6.0 Personal security

Housing

4.0 2.0 0.0

Environmental quality

Civic engagement and governance Social connections

Work and life balance

Health status Education and skills

Source: OECD (2017), OECD Better Life Index, www.oecdbetterlifeindex.org.

2

Economic growth is robust Real GDP, Index 2007= 100 120

120 Euro Area

Germany

90

2017

90

2016

95

2015

95

2014

100

2013

100

2012

105

2011

105

2010

110

2009

110

2008

115

2007

115

Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).

3

Relative poverty is low 30

Population with disposable income below the poverty line, % of population, 2015

30 25

20

20

15

15

10

10

5

5

0

0

CZE ISL DNK SVK FIN NOR FRA AUT NLD SVN LUX DEU HUN CHE SWE IRL BEL GBR POL OECD PRT KOR NZL ITA AUS GRC CAN JPN EST ESP LVA CHL USA MEX TUR ISR

25

Note: The poverty line is 60% of median household income. Household income is adjusted to take into account household size.

Source: OECD (2018), OECD Social and Welfare Statistics (database).

4

10 10

8 8

6 6

4 4

2 2

2018Q1

2017Q1

2016Q1

2015Q1

2014Q1

2013Q1

2012Q1

2011Q1

2010Q1

2009Q1

2008Q1

2007Q1

2006Q1

2005Q1

2004Q1

2003Q1

2002Q1

12

2001Q1

2000Q1

1999Q1

1998Q1

1997Q1

1996Q1

1995Q1

1994Q1

1993Q1

1992Q1

1991Q1

Unemployment is at a record low Unemployment rate, % of labour force 12

Source: Statistisches Bundesamt.

5

Most German youth are in employment, education or training 30

Youth not in employment, education or training (NEET), % of 15-29 year-olds, 2016

30 25

20

20

15

15

10

10

5

5

0

0

ISL LUX NLD DNK SWE CHE NOR DEU JPN AUT NZL AUS SVN CZE BEL CAN GBR FIN ISR OECD USA LVA EST POL HUN PRT SVK IRL FRA CHL ESP MEX GRC ITA TUR

25

Source: OECD (2017), "Education at a glance: Educational attainment and labour-force status", OECD Education Statistics (database).

6

Wage growth remains moderate Nominal wage growth and inflation Year-on-year growth rates, %

4.5

Inflation

4.5

Nominal wage rate

Note: Inflation is that of the Harmonised consumer price index (HICP).

Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).

2018Q1

2017Q3

2017Q1

2016Q3

2016Q1

2015Q3

2015Q1

2014Q3

-0.5

2014Q1

-0.5

2013Q3

0.5

2013Q1

0.5

2012Q3

1.5

2012Q1

1.5

2011Q3

2.5

2011Q1

2.5

2010Q3

3.5

2010Q1

3.5

7

High corporate saving contributes to the current account surplus Current account and saving-investment balance, % of GDP

10.0

Current account balance

10.0

Saving-investment balance of corporations

2017

2016

2015

2014

-4.0

2013

-4.0

2012

-2.0

2011

-2.0

2010

0.0

2009

0.0

2008

2.0

2007

2.0

2006

4.0

2005

4.0

2004

6.0

2003

6.0

2002

8.0

2001

8.0

Source: OECD calculations based on OECD (2018), OECD National Accounts Statistics (database) and OECD (2018), OECD Economic Outlook: Statistics and Projections (database ).

8

CHALLENGES

9

Trend productivity growth has slowed Average annual rate of labour productivity growth, 2.5

2.5 1996-2006

2006-16

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

DEU

GBR

JPN

FRA

CAN

SWE

USA

0.0

Note: Average annual growth in trend labour productivity.

Source: OECD (2018), "OECD Economic Outlook No. 102 (Edition 2017/2)", OECD Economic Outlook: Statistics and Projections (database).

10

Many workers earn low wages Employees earning low wage, % of all employees 45

45 Germany

EU

36

36

27

27

18

18

9

9

0

Total

Low skilled

Medium skilled

High skilled

Women

Men

0

Note: employees earning low wage are those earning less than two thirds of the median gross hourly earnings.

Source: Eurostat (2018), Employment and working conditions (database).

11

Highly educated women earn much less than men Women's earnings as % of men's earnings, Tertiary education graduates, 2014

50

40

40

SWE

50

DNK

60

FIN

60

GBR

70

AUS

70

NLD

80

OECD

80

FRA

90

DEU

90

CAN

100

AUT

100

Source: OECD (2016), Education at a Glance 2016: OECD Indicators.

12

CO2 emissions have fallen little in recent years CO2 emission, tonnes per capita Germany

11.0

OECD

11.0

2014

2013

2012

2011

2010

2009

2008

2007

2006

8.0

2005

8.0

2004

8.5

2003

8.5

2002

9.0

2001

9.0

2000

9.5

1999

9.5

1998

10.0

1997

10.0

1996

10.5

1995

10.5

Note: Emission is production based.

Source: OECD (2018), Green Growth Indicators (database).

13

Small particle emissions have not fallen recently Mean annual concentration of PM2.5, Âľg/mÂł

19

Germany

19

OECD

2015

2014

2013

2012

2011

12

2010

12

2009

13

2008

13

2007

14

2006

14

2005

15

2004

15

2003

16

2002

16

2001

17

2000

17

1999

18

1998

18

Source: OECD (2018), Green Growth Indicators (database).

14

USING FISCAL POLICY TO SUPPORT INCLUSIVE GROWTH

15

Labour taxes on low incomes are high 50

Labour income tax and social security contributions, as % of labour costs, 2017 Average tax wedge

Personal income tax

Social security contributions

50

40

30

30

20

20

10

10

0

0

CHL NZL ISR MEX CHE KOR IRL AUS CAN GBR LUX USA ISL NLD JPN OECD NOR TUR DNK POL ESP PRT GRC FIN EST SVK SVN ITA CZE SWE FRA AUT DEU HUN BEL

40

Note: Income tax plus employee and employer social security contributions less cash benefits for single person, no child, earning 67% of average earnings.

Source: OECD (2018), Taxing Wages Statistics (database).

16

Environmental tax revenue could be higher 5

Environmental tax revenue, % of GDP, 2014

5

4

3

3

2

2

1

1

0

0

MEX USA CAN CHL NZL JPN SVK CHE ESP AUS DEU FRA LUX ISL BEL NOR IRL PRT SWE GBR KOR EST HUN CZE GRC FIN AUT ISR NLD TUR ITA SVN DNK

4

Source: OECD (2018), "OECD Instruments used for environmental policy", OECD Environment Statistics (database).

17

Expenditure on primary education is low Annual public expenditure in primary education, Per student, USD thousand, PPPs, 2014

21.2

20

20

LUX

CHE

NOR

DNK

GBR

USA

ISL

AUT

SWE

BEL

KOR

SVN

CAN

0

JPN

0

FIN

4

OECD

4

DEU

8

NLD

8

AUS

12

IRL

12

NZL

16

FRA

16

Source: OECD (2017), Education at a Glance 2017: OECD Indicators.

18

Ageing related spending will increase Projections on ageing related spending, % of GDP

%

% 25

25 Pensions, net

Health care

Long-term care

20

20

15

15

10

10

5

5

0

2020

2035

2060

0

Source: European Commission (2015), "The 2015 ageing report: Economic and budgetary projections for the 28 EU Member States (2013-2060)". Based on the reference scenario.

19

Key recommendations for fiscal policies supporting steady inclusive growth •

Use fiscal leeway in a prudent manner, taking capacity constraints into account, to lower the taxation of low wage earnings and to raise priority spending on childcare, education and life-long learning as well as for lowemission transport infrastructure.

•

Index the legal pension age to life expectancy.

•

Introduce spending reviews more broadly at the federal and Länder level and use them to reallocate funding across broad spending fields.

More in the Key Policy Insights of the Economic Survey of Germany 2018

20

Key recommendations for boosting green growth •

Extend charging station infrastructure to promote electrification of road transport.

•

Develop congestion pricing.

•

Remove regulatory hurdles to new low-emission urban transport services, including ride-sharing.

More in the Key Policy Insights of the Economic Survey of Germany 2018

21

BOOSTING PRODUCTIVITY AND PREPARING FOR THE FUTURE OF WORK

22

Technology diffusion has slowed Multifactor productivity level of German firms, index 2006 =100 A. Manufacturing 130

The rest

Best performers

B. Services 130

120

120

110

110

100

100

90

90

80

80

70

70

60

2006 2007 2008 2009 2010 2011 2012 2013

60

The rest

Best performers

2006 2007 2008 2009 2010 2011 2012 2013

Note:The Best performers are the top 5% firms with highest productivity within each 2-digit sector .

Source: OECD calculations based on ORBIS dataset.

23

Small and medium sized firms lag behind in productivity Value added per person employed in SMEs, % of the level of large firms, 2014 140

140 Small (20-49 persons)

Medium (50-249 persons)

120

120

100

100

80

80

60

60

40

40

20

20

0

DEU

DNK

CHE

SWE

FRA

ITA

FIN

ESP

BEL

AUT

GBR

NLD

0

Note: Large firms are firms with more than 250 employed persons.

Source: OECD calculations based on OECD (2017), Entrepreneurship at a Glance 2017.

24

Knowledge-based capital contributes little to productivity growth Contribution of KBC to labour productivity growth, Percentage points, business sector, 2000-14

SWE

BEL

AUT

0.00

FRA

0.00

FIN

0.05

CZE

0.05

DNK

0.10

EST

0.10

NLD

0.15

PRT

0.15

DEU

0.20

ESP

0.20

USA

0.25

NOR

0.25

GRC

0.30

ITA

0.30

LUX

0.35

GBR

0.35

Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The digital transformation.

25

Entrepreneurship has declined Number of new enterprises, index 2012=100 130

130 Belgium

Netherlands

Germany

2017Q1

2016Q3

2016Q1

2015Q3

2015Q1

2014Q3

80

2014Q1

80

2013Q3

90

2013Q1

90

2012Q3

100

2012Q1

100

2011Q3

110

2011Q1

110

2010Q3

120

2010Q1

120

Note: the number of new enterprises is adjusted for business cycle components.

Source: OECD (2017), Entrepreneurship at a Glance 2017.

26

Women’s entrepreneurship is low The share of self-employed women, % of total active women, 2016 25

20

20

15

15

10

10

5

5

0

0

NOR JPN DNK SWE EST DEU USA IRL ISL SVN LUX FRA HUN LTU AUT FIN ISR LVA CHE BEL GBR TUR ROU OECD SVK PRT CAN ZAF ESP CZE NLD AUS POL NZL KOR ITA BRA GRC CHL MEX

25

Source: OECD (2017), Entrepreneurship at a Glance 2017.

27

The insolvency regime is efficient OECD indicator of insolvency regime, From least (0) to most (1) restrictive, 2016

0.7

0.7

EST

HUN

NLD

BEL

CAN

AUS

SWE

TUR

SVK

NOR

AUT

LVA

MEX

POL

CZE

ITA

NZL

SVN

0.0

FIN

0.0

CHL

0.1

GRC

0.1

IRL

0.2

ISR

0.2

FRA

0.3

CHE

0.3

USA

0.4

ESP

0.4

PRT

0.5

DEU

0.5

JPN

0.6

GBR

0.6

Note: The OECD insolvency regime indicator capture (1) personal costs to failed entrepreneurs, (2) lack of preventative and streamlining measures and (3) barriers to restructuring. Higher values of the composite indicator correspond to more inefficiency.

Source: Adalet McGowan, M., D. Andrews and V. Millot (2017), "Insolvency regimes, zombie firms and capital reallocation", OECD Economics Department Working Papers, No. 1399.

28

The personal costs of failed entrepreneurs are high The subcomponent of the OECD insolvency indicator on personal costs of failed entrepreneurs, from least (0) to most (1) restrictive, 2016 1.0

0.9

0.9

0.8

0.8

0.7

0.7

0.6

0.6

0.5

0.5

0.4

0.4

0.3

0.3

0.2

0.2

0.1

0.1

0.0

0.0

CAN TUR USA AUS CHL GBR JPN LTU RUS AUT CHE CRI DNK ESP FIN FRA GRC IRL ITA LVA MEX NOR NZL SVK SVN BEL DEU EST HUN ISR KOR NLD POL PRT SWE CZE

1.0

Note: The subcomponent captures the stringency of the restrictiveness on the insolvency procedure on failed entrepreneurs, including the length of discharge period.

Source: Adalet McGowan, M., D. Andrews and V. Millot (2017), "Insolvency regimes, zombie firms and capital reallocation", OECD Economics Department Working Papers, No. 1399.

29

Low use of e-government raises costs of start-ups Individuals submitting forms to authorities online, % of individual surveyed, 2016

DNK

EST

NOR

FIN

NLD

FRA

IRL

SWE

CHE

LUX

BEL

GBR

LTU

AUT

ESP

LVA

PRT

GRC

HUN

TUR

POL

0

CAN

0

SVN

20

DEU

20

SVK

40

CZE

40

CHL

60

ITA

60

MEX

80

JPN

80

Source: OECD (2017), OECD Digital Economy Outlook 2017.

30

Entry barriers to professional services are high Indicator of regulation in professional services, From least (0) to most (6) stringent 4.0

3.5

3.5

3.0

3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

SWE FIN GBR DNK CHE AUS NOR NZL NLD IRL MEX CHL EST OECD ITA JPN KOR FRA CZE ESP BEL SVN ISR DEU AUT SVK PRT GRC HUN CAN POL LUX TUR

4.0

Source: OECD (2015), OECD Product Market Regulation Database.

31

Internet connection speed is slow Average peak connection speed, Megabits per second, Q1 2017 120

90

90

60

60

30

30

0

0

GRC MEX FRA TUR ITA AUS LUX SVN EST LTU AUT CHL DEU POL PRT SVK IRL NZL DNK GBR FIN CZE HUN CAN LVA NLD ESP BEL NOR USA CHE JPN SWE KOR

120

Source: Akamai (2017), “Akamai’s state of the Internet report: Q1 2017 report”, https://www.akamai.com.

32

Many jobs may undergo substantial changes Jobs at high risk of automation and significant change, % of all jobs

70

Jobs at high risk of automation

70

Jobs at risk of significant change

SVK

TUR

GRC

JPN

DEU

CHL

SVN

ESP

ITA

POL

FRA

CZE

AUT

ISR

0

KOR

0

EST

10

IRL

10

BEL

20

CAN

20

NLD

30

DNK

30

GBR

40

USA

40

SWE

50

FIN

50

NZL

60

NOR

60

Source: Nedelkoska, L. and G. Quintini (2018), "Automation, skills use and training", OECD Social, Employment and Migration Working Papers, No. 202, OECD Publishing, Paris.

33

Key recommendations for boosting productivity and preparing for the future of work Boost entrepreneurship and resource allocation •

Ease the conditions for bankrupt entrepreneurs to be discharged of debt after 3 years, while maintaining adequate safeguards for creditors.

•

Create a one stop shop to process all procedures for starting up a company online.

•

Reduce restrictive regulation in the professional services, safeguarding quality standards and consumer interests.

•

Privatise government stakes in the Landesbanken, car manufacturing, telecommunications and postal services.

Strengthen digital infrastructure through competition •

Use the upcoming radio spectrum auction to promote competition in the mobile market.

Expand social protection for the self employed •

Make enrolment in public old-age pension mandatory for the self-employed who are not covered by old-age pension insurance.

•

Open access to public health insurance to all self-employed.

More in Chapter 1 of the Economic Survey of Germany 2018 34

IMPROVING SKILLS AND THEIR USE

35

Adults skills lag behind leading countries PIAAC mean proficiency scores in literacy

JPN

240

FIN

240

NLD

250

AUS

250

SWE

260

EST

260

CAN

270

GBR

270

DNK

280

DEU

280

USA

290

AUT

290

OECD

300

FRA

300

Note: The data refer to 15-65 year-olds Source: OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills.

36

Literacy skills are low among workers with low education attainment PIAAC mean proficiency scores in literacy, by educational attainment 350

350 Less than upper secondary

Tertiary

Upper secondary

290

260

260

230

230

200

200

DEU

290

OECD

320

JPN

320

Note: The data refer to 15-65 year-olds Source: OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills.

37

ICT skills lag behind leading countries, especially among the young Population with above basic ICT skills, % of total population, by age cohort, 2017 90

90 16-24 year-olds

25-54 year-olds

55-64 year-olds

75

75

60

60

45

45

30

30

15

15

0

EU28

FRA

DEU

SWE

GBR

AUT

FIN

DNK

NLD

0

Source: Eurostat (2018), Individuals' level of digital skills (database).

38

Women’s skills are under-used Gender difference in PIAAC problem solving skills at work, % of the mean use of skills by women

JPN

AUT

0

DEU

0

NLD

5

FRA

5

OECD

10

CAN

10

AUS

15

DNK

15

USA

20

SWE

20

GBR(Eng.)

25

FIN

25

Note: Gender differences in problem solving skills at work is captured as the difference in of the mean use of skills between men and women.

Source: OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills.

39

Educational attainment of disadvantaged students has improved Students with mid-level or higher PISA attainment, as % of disadvantaged students 60

2016

60

2006

50

50

40

40

30

30

20

20

10

10

0

USA

AUT

FRA

SWE

OECD

GBR

AUS

DNK

DEU

NLD

FIN

CAN

JPN

0

Note: The share of students achieving level 3 or above in all three PISA domains (reading, mathematics and science) among the 25% most disadvantaged students in their country according to the PISA index of economic, social and cultural status.

Source: Agasisti, T., et al. (2018), "Academic resilience: What schools and countries do to help disadvantaged students succeed in PISA", OECD Education Working Papers, No. 167.

40

Parents’ educational attainment influences children’s skills Difference in PIAAC literacy scores between individuals with parents with high and low educational attainments

60

Unadjusted

60

Adjusted for socio-economic background

DEU

FRA

0

GBR

0

FIN

10

AUT

10

OECD

20

NLD

20

DNK

30

CAN

30

KOR

40

SWE

40

JPN

50

AUS

50

Note: Difference in PIAAC literacy scores between individuals aged 25-65 with one parent educated to tertiary level and no parent educated to upper secondary level. The adjusted differences take into account differences in age, gender, education, immigrant and language background.

Source: OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills.

41

The income of vocational graduates increases only little over their lifetime Yearly earnings of 25-65 year-olds men, euros Vocational upper secondary

Vocational tertiary education

General tertiary education

100,000

100,000

80,000

80,000

60,000

60,000

40,000

40,000

20,000

20,000

0

25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65

0

age

Source: Economic Survey of Germany 2018.

42

Participation in lifelong learning could be higher Participation in life-long learning, % of population aged 26-64, 2017 35

35 Germany

Sweden

European Union

5

0

0

2017

5

2016

10

2015

10

2014

15

2013

15

2012

20

2011

20

2010

25

2009

25

2008

30

2007

30

Source: Eurostat (2018), Education and training (database).

43

Key recommendations for improving skills and their use Improve equity in education •

Raise quality standards in childcare and early childhood education.

•

Expand primary education to high-quality full-day education programmes.

Reduce skill mismatch •

Lower the tax burden on the wage income of second earners.

•

Increase the minimum amount of time the second parent has to take parental leave, from the current 2 months, for the couple to receive the maximum leave entitlement.

Improve upskilling opportunities in the vocational education system •

Strengthen general education within vocational schools, and maintain the strong labour market orientation of vocational education and training.

Boost participation in life-long learning •

Offer more training programmes for the modular acquisition of qualifications in life-long learning and foster the recognition of skills acquired on-the-job.

•

Strengthen support for unskilled adults to obtain professional qualifications.

More in the Chapter 2 of the Economic Survey of Germany 2018 44

For more information Disclaimers: 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.

This document and any 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.

http://www.oecd.org/eco/surveys/economic-survey-germany.htm 45