Presentation of the 2017 OECD Economic Survey of Luxembourg

2017 OECD ECONOMIC SURVEY OF LUXEMBOURG Better skills for more inclusive growth Paris, July, 21th http://www.oecd.org/eco/surveys/economic-survey-luxembourg.htm

@OECDeconomy @OECD

Main messages • Luxembourg’s economic performance is strong.

• The short-term fiscal stance is adequate. However, Luxembourg faces high age-related costs.

• The modernisation strategy will require improvements in education outcomes, especially for immigrants, and better upskilling of workers over their lifetime.

• Inclusive growth would also benefit from reducing work disincentives faced by low-skilled youth, women and older workers.

2

Well-being is high Life is good in Luxembourg Income and wealth 10

Subjective well-being

8

Jobs and earnings

6

Personal security

Housing

4 2 0

Environmental quality

Work and life balance

Civic engagement and governance

Health status

Social connections Luxembourg

Education and skills OECD

Note: Indicators are normalised to range between 10 (best) and 0.

Source: OECD (2016), OECD Better Life Initiative 2016, www.oecd.org/statistics/better-life-initiative.htm

3

Unemployment is low and declining Unemployment rates, per cent of labour force 20 Luxembourg

Euro area 15

10

5

2007

2009

2011

2013

2015

2017

0

Source: OECD Economic Outlook 101 database.

4

There is ample fiscal space General government fiscal balance, per cent of GDP % of GDP

% of GDP

7

7

6

6

5

5

4

4

3

3

2

2

1

1

0

0

-1

-1

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-2

Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).

5

But ageing costs are projected to rise Gross public pension expenditure, per cent of GDP 20

2013

2060

20

18

18

16

16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

NLD IRL EST LVA GBR SVK SWE CZE LUX NOR DEU DNK POL EU HUN BEL SVN ESP FIN PRT AUT FRA ITA GRC

0

Source: European Commission (2015), The 2015 Ageing Report: Economic and budgetary projections for the 28 EU Member States (2013-2060).

6

House prices are growing strongly‌ Real house prices, index 2007=100 Seasonally adjusted

Seasonally adjusted 150

150

140

Luxembourg

Australia

Belgium

France

Germany

Sweden

Canada 140

130

130

120

120

110

110

100

100

90

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

90

Source: OECD, Analytical house prices indicators database.

7

‌and household indebtedness is rising also Household debt, per cent of GDP or GNI 100

100

90

90

80

80

70

70

60

60

50

50

40

40

30 20

% of GDP (Gross Domestic Product)

10 0

30

% of GNI (Gross National Income)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

20 10 0

Note: The instruments that are taken into account to compile household debt are debt securities and loans.

Data are presented in consolidated terms.

Source: OECD National Accounts Statistics.

8

Economic growth is strong, but relies heavily on the financial sector Real GDP growth, year-on-year percentage changes 12 10 8 6 4 2 0 -2 -4 -6

Luxembourg

Euro area

-8 -10

2007

2009

2011

2013

2015

2017

Source: OECD Economic Outlook 101 database.

9

Green growth requires further investment Congestion times are among the highest in Europe Hours spent in road congestion by the average driver every year, 2015 45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

FIN EST SWE LVA SVK DNK CZE POL ESP SVN AUT HUN PRT FRA EU DEU NLD IRL LUX ITA BEL GRC GBR

0

Note: This indicator assumes two 30km trips per day (morning peak and evening peak) and 220 working days. It takes into account all major roads in the 27 Member States for which data is available (about 2 500 000 kilometers).

Source: European Commission, EU transport scoreboard 2016.

10

The demand for skills is changing Average annual change in total employment requiring different tasks (thousands)

18

Non-routine manual

Routine manual

Abstract

18

15

15

12

12

9

9

6

6

3

3

0

0

-3

-3

-6

1996-2008

2009-10

2012-15

-6

Note: Refers to population aged between 15 and 64. Abstract tasks refer to problem-solving, intuition, persuasion and creativity.

Source: Eurostat (2017), Employment and unemployment (Labour Force Survey) (database), March.

11

Luxembourg has long attracted immigrants to fill vacancies Net migration flows, % of total population 2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

0.0

Source: STATEC.

12

Recommendations for more resilient and greener growth 1. The linkages between banks and investment funds need to be closely monitored.

2. Additional macro-prudential measures should be introduced to rein in high household indebtedness and increasing housing prices.

3. Housing supply should be supported by streamlined land planning, introduction of time-limited building permits and increased taxation of non-used constructible land.

4. Age-related costs should be reduced further by linking the legal age of pension with life expectancy and the level of pensions to the level of contributions.

5. Green growth requires higher taxes on transport fuel, a system of congestion charges and further investment in transport infrastructure.

13

BETTER SKILLS FOR MORE INCLUSIVE GROWTH

14

Computer skills are high Share of people with computer skills, 2014

ROU

TUR

BGR

POL

HRV

HUN

BEL

SVK

0

MLT

0

ITA

5 IRL

5 NLD

10

CZE

10

EU28

15

LVA

15

GRC

20

DEU

20

SVN

25

GBR

25

FRA

30

ESP

30

PRT

35

AUT

35

LTU

40

EST

40

ISL

45

SWE

45

DNK

50

NOR

50

LUX

%

FIN

%

Note: Share of individuals aged 16 to 74 reporting to have carried out five or six specific tasks related to computer use.

Source: Eurostat (2015), Individuals’ level of computer skills; European Commission (2012.

15

Skill mismatches are high Self-reported skills mismatch As percentage of all employment, 2015 60

60

Overskilled

Underskilled

AUT

EST

SVN

HUN

DEU

LUX

CHE

SWE

IRL

DNK

ESP

GRC

FRA

EU-28

0

GBR

0

POL

10

NLD

10

CZE

20

SVK

20

LVA

30

BEL

30

NOR

40

ITA

40

FIN

50

PRT

50

Note: Workers are classified as underskilled (overskilled) if they report that they need further training to cope well with their duties (if they report that they have the skills to cope with more demanding duties).

Source: Sixth European Working Conditions Survey, 2015.

16

Education scores show a persistent gap Average PISA scores, 2009-2015 Mean score

Mean score 505

505 OECD average

Luxembourg

500

500

495

495

490

490

485

485

480

480

475

475

470

470

465

465

460

Science

Reading

Mathematics

460

Source: OECD (2016), PISA 2015 Results (Volume I): Excellence and Equity in Education.

17

Grade repetition is high Share of 15-years old who repeated a year at least once, per cent 35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

ISL SVN GBR FIN DNK EST SWE KOR CZE NZL GRC LVA POL CAN SVK AUS IRL ISR HUN TUR USA OECD ITA AUT MEX DEU CHE NLD FRA CHL LUX PRT ESP BEL

35

Source: OECD (2016), PISA 2015 Results (Volume I): Excellence and Equity in Education.

18

The share of training in active labour market policy spending is low Per cent of GDP, average 2010-15 (or last available year) 1.6

1.6

Training

Total LMP measures

1.4

1.4

1.2

1.2

1.0

1.0

0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

0.0

GBR EST SVK CZE GRC LVA SVN ITA DEU NOR POL PRT LUX EU28 BEL ESP HUN AUT NLD IRL FRA FIN SWE DNK

0.0

Source: European Commission, Labour market policy (LMP) database.

19

High marginal tax rates create disincentives to work Marginal Effective Tax Rates on increasing working hours, 2014 % of gross earnings

% of gross earnings 110

100

100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

0

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

110

Note: From 33% to 67% of average wage, supplements included, for married couple.

Source: OECD, Tax-Benefit Models.

20

Work disincentives for second earners are high Net personal average tax rates on second earners, 2015 % 50

45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

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

% 50

Note: Second earner at 67% of the average wage (primary earner at the average wage level), no children.

The net personal average tax rate is calculated as the increase in income tax and employee SSCs (net of in-work benefits) paid by the family as a result of the second earner entering workforce divided by the increase in family gross income as a result of the second earner entering in the workforce.

Source: Thomas and O’Reilly (2016).

21

Recommendations for better skills for more inclusive growth 1. Reduce grade repetition by providing earlier individualised support to students falling behind.

2. Improve the mobility between secondary education tracks through curriculum alignment and differentiated teaching.

3. Ease the upward mobility of vocational education students to tertiary education programmes. Strengthen career guidance and counselling to improve responsiveness of tertiary education to labour market needs.

4. Enhance access to lifelong learning by creating individual learning accounts and expanding the individual study leave. Tailor lifelong learning programmes to the needs of the low-skilled and older workers.

5. Adjust the tax and benefit system to increase incentives to work for lowskilled youth, older workers and second earners.

22

IMPROVING FURTHER THE INTEGRATION OF IMMIGRANTS

23

The large immigrant population has a high employment rate % of total population

A. Foreign-born population 1 January 2016

% points B. Employment rate Gap relative to native born, age 15-64, 2015 8

50 45 40

Non-EU28 4

EU28

35

0

30 25

-4

20 -8

15 10

-12

NLD SWE DNK BEL FIN FRA AUT DEU NOR TUR CHE LVA SVN SVK ISL ESP GBR POL EST IRL CZE GRC ITA PRT LUX HUN

0

POL SVK CZE HUN FIN PRT ITA DNK GRC SVN FRA NLD ISL ESP LVA DEU GBR EST NOR BEL IRL SWE AUT CHE LUX

5 -16

Source: Eurostat (2016), Population Statistics and Employment and Unemployment (Labour Force Survey) Statistics.

24

Non-EU immigrants face higher unemployment Unemployment rate by country of origin, age group 15-74, per cent 25

25

Extra-EU-28 EU-28 countries

20

Luxembourg

20

15

15

10

10

5

5

0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

Source: Eurostat, Employment and unemployment (Labour Force Survey) database.

25

The risk of poverty is high among non-EU immigrants Age 18-64, 2015 60

60

50

50

40

40

30

30

20

20

10

10

0

POL ISL CZE LVA EST PRT NLD NOR DEU GBR FIN HUN DNK FRA SVN EU28 AUT ITA SWE LUX BEL ESP GRC

0

Source: Eurostat (2015), "Living conditions and welfare: Income distribution and monetary poverty", Eurostat Database, October.

26

Immigrants are under-represented in public sector jobs Share of employment in the public services sector, aged 15- 64, 2012-2013 % 60

Among foreign born

Among native born

% 60 50

40

40

30

30

20

20

10

10

0

0

GRC ITA ESP BGR LUX SVN CZE AUT DEU TUR LVA EST EU OECD CHE IRL ROU SVK HRV ISL HUN LTU FRA BEL FIN MLT PRT POL NLD GBR DNK SWE

50

Source: OECD/European Union (2015).

27

Processing times for immigration of highlyskilled non-EU workers is high Time in weeks 18

18

16

16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

GBR BEL DNK GRC NOR PRT AUS NLD ESP SWE FRA DEU IRL LVA CHE HUN POL SVK USA CAN EST FIN AUT CZE LUX ITA

0

Source: Deloitte (2016), Global Immigration Study.

28

Socio-economic status has a large impact on student performance Impact of socio-economic background, Performance in science, PISA 2015 25

20

20

15

15

10

10

5

5

0

0

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

25

Note: Percentage of variance in student performance in science explained by ESCS, which refers to the PISA index of economic, social and cultural status.

Source: OECD (2016), PISA 2015 Results (Volume I): Excellence and Equity in Education.

29

Performance of students with immigrant background is lagging behind Performance in science, score points, PISA 2015 600

Immigrants students

Non-immigrant students

500

400

300

200

100

0

Preparatory

Technical

Secondary

Note: At the end of primary school, children are assigned to different programmes of secondary education: academic (enseignement secondaire, ES), technical (enseignement secondaire technique, EST) and preparatory (rĂŠgime prĂŠparatoire, PREP).

Source: OECD, PISA 2015 Database.

30

Disadvantaged schools face greater shortages of educational resources Index of shortage of education staff Difference between schools in top and bottom quarters of socio-economic profile, PISA 2015 0.4

0.2

0.2

0.0

0.0

-0.2

-0.2

-0.4

-0.4

-0.6

-0.6

-0.8

-0.8

-1.0

-1.0

-1.2

-1.2

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

0.4

Note: Higher values in the indices indicate a greater shortage of educational resources. The socio-economic profile is measured by the PISA index of economic, social and cultural status.

Source: OECD (2016), PISA 2015 Results (Volume II): Resources Invested In Education.

31

Recommendations for improving the integration of immigrants 1. Improve the availability of high-quality child care and provide incentives for fathers to share parental leave.

2. Continue to increase public supply of language courses. Diversify language training according to workplace needs.

3. To limit long periods of inactivity, speed up decisions on asylum applications and ease provisional labour market access for applicants with high prospects of being allowed to stay.

4. Ease immigrants’ access to public sector jobs.

5. Make resource allocation across schools more equitable and introduce incentives to attract more experienced teachers to disadvantaged schools.

32

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.

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