2016 OECD ECONOMIC SURVEY OF GERMANY

Investing in the Future Berlin, April 5th 2016

@OECD@OECDeconomy

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

2

The economy has rebounded strongly

1.Euro area countries which are OECD members.2.Includes Denmark, Sweden, Switzerland and the United Kingdom. They are weighted on the basis of GDP at 2011 purchasing power parities.Source: OECD (2015), OECD Economic Outlook 98 Database, and OECD calculations based on OECD Economic Outlook 98 Database and on Main Economic Indicators Database.

2007 2008 2009 2010 2011 2012 2013 2014 201590

92

94

96

98

100

102

104

106

108

110

2007=100Germany

Euro area¹(15)European high-incomeeconomies outside the euro area²

USA

3

Well-being is good

Note: Each well-being dimension is measured by one to four indicators from the OECD Better Life indicator set. Normalised indicators are averaged with equal weights. Indicators are normalised to range between 10 (best) and 0 according to the following formula: (indicator value – minimum value)/(maximum value – minimum value).Source: OECD (2015), OECD Better Life Index.

4

The unemployment rate is low

1.Euro area countries which are OECD members.2.Includes Denmark, Sweden, Switzerland and the United Kingdom.Source: OECD (2015), OECD Economic Outlook 98 Database, and OECD calculations based on OECD Economic Outlook 98 Database and on Main Economic Indicators Database.

2007 2008 2009 2010 2011 2012 2013 2014 20152

3

4

5

6

7

8

9

10

11

12

% of labour force

Germany Euro area¹(15)European high-income economies outside the euro area2

USA

5

The gender earnings gap is very wide

1.Defined as the difference between male and female median labour earnings (not adjusted for hours worked) divided by male median labour learnings.Source: OECD (2012), Closing the Gender Gap: Act Now.

SVN HUN SVK FRA SWE BEL CZE USA IRL LUX AUT KOR DEU NLD0

10

20

30

40

50

0

10

20

30

40

50Gender earnings gap1 for all workers% %

In Germany this mostly reflects few hours worked by women.

6

Investment is low

0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

ITA GBR DEU FIN DNK NLD FRA USA IRL BEL AUT JPN CHE SWE

% of GDP % of GDP

Note: 2013 for Japan and Switzerland.Source: OECD (2015), OECD National Accounts Database

Non-residential investment as % of GDP, 2014

7

High corporate saving contributes to the large current account surplus

Source: OECD (2015), OECD National Accounts Database.

8

The number of immigrants and registered asylum seekers has risen strongly

Source: Federal Statistical Office and Federal Office for Migration and Refugees

RAISING INVESTMENT AND PRODUCTIVITY

10

Service sector productivity is low

Remove barriers to competition in professional services and network industries.

Source: OECD (2015), OECD Productivity Database and OECD National Accounts Database.

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201580

90

100

110

120

130

140

150

80

90

100

110

120

130

140

150

Gross value added per hour worked, constant pricesManufacturing Business services

1997=100 1997=100

11

Business services account for most investment

Investment spending as a share of total economy value added

Note: Investment includes only new fixed capital goods. It excludes adjustment for net sales of used capital goods.Source:OECD (2015), OECD National Accounts Database.

12

Regulation in professional services is restrictive

1.Average of all OECD countries excluding the United States. For the panel B, the Slovak Republic and Slovenia are also excluded to calculate the OECD average in 2008.Source: OECD (2015), OECD Product Market Regulation Database.

Regulation of professional services, Index scale from 0 to 6, from least to most restrictive

Eliminate price regulation, review compulsory membership in the professional chambers, reduce exclusive rights (for example for notaries), ease restrictions on firm ownership and on advertising.

13

Complex regulation hampers entrepreneurship

1.Average of all OECD countries excluding the United States. For the panel B, the Slovak Republic and Slovenia are also excluded to calculate the OECD average in 2008.Source: OECD (2015), OECD Product Market Regulation Database.

Complexity of regulatory procedures, Index scale from 0 to 6, from least to most restrictive

Further simplify administrative procedures. For example apply the “Silence is consent” rule more generally when issuing licences and strengthen e-governance.

14

Investment in knowledge-based capital is low

Business investment in knowledge-based capital Per cent of business sectors’ gross value added, 2013

Source: OECD (2016), OECD Science, Technology and Industry Scoreboard 2015: Innovation for growth and society. Reduce government ownership in the business sector and avoid incumbent bias in policy making.

15

Net investment of local governments has fallen

Source: OECD (2015), OECD National Accounts Database.

Provide more support to good municipal investment projects, including by strengthening administrative capacity.

16

Supply of high speed (fibre) internet is lowRollout of broadband by type of technology

Fixed broadband subscriptions per 100 inhabitants, December 2014

Target government support to the roll-out of fibre networks.

Estimates for Israel, Switzerland and the United States. Preliminary data for Mexico.Source: OECD Science, Technology and Industry Scoreboard 2015.

WELL-BEING AND DEMOGRAPHIC CHANGE

18

The society is aging

Projected employment and population trends

Index the pensionable age to increases in life expectancy. Enroll everyone in occupational pension schemes by default, with

an opt-out option.

19

Immigration can delay population aging

Note: The assumptions of the 'baseline (net immigration 200 000)' scenario include a constant birth rate of 1.4 children per woman, a moderate increase in life expectancy at birth to 84.8 years for men and 88.8 for women in 2060, and a gradual adjustment of net immigration from 500 000 in 2014 to 200 000 in 2021. Source: OECD (2015), OECD Population Statistics: Historical population data and projections (1950-2050) (database) and Statistisches Bundesamt.

Those below 15 and above 65 years old relative to those 15-65 years old

20

Immigrant youth have poor education outcomes

Difference in mathematics score between native born and immigrant youth

Improve training and recognition of immigrants' skills. Ease access to the labour market for asylum seekers who are

likely to stay. Include them in active labour market programmes.

Source: OECD (2013d), PISA 2012 Results: Excellence through Equity, Giving Every Student the Chance to Succeed, Vol. II.

21

The tax burden on labour is highIncome tax and social security contributions,

as percentage of labour costs, 2014

Note: Income tax plus employee and employer contributions less cash benefits of a single, no child, full-time worker earning 67% of average earning.Source: OECD (2015), Taxing Wages 2015

Shift the tax burden from labour income towards real estate and consumption.

22

The tax system discourages full-time employment of second earners, mostly women

-4

-2

0

2

4

6

8

10

12

14

-4

-2

0

2

4

6

8

10

12

14

ISR

GRC MEX NLD

CHL

FIN

GBR TU

R

KOR

SWE

NOR

JPN

POL

ESP

FRA

AUT

ITA

EST

HUN

CHE

USA

DNK

PRT

SVK

BEL

CAN

AUS

DEU

CZE

LUX

IRL

ISL

SVN

NZL

%% The average tax rate of two-earner families minus that of one-earner families, 2014

Note: The bars show the difference between the tax wedge of a two- and one-earner families. The main earner earns the average earnings and the secondary earner earns 67% of the average earnings in a family of a married couple with two children. The tax wedge is the sum of personal income tax, employee plus employer social security contributions together with any payroll tax, minus benefits as a percentage of labour costs.Source: OECD (2015), "Taxing Wages: Comparative tables", OECD Tax Statistics (database). Introduce a separate tax-free allowance for second earners. Relate health insurance premiums to the number of adults in a household.

23

Few people work beyond the age of 65ES

PSV

KHU

NBE

LFR

AG

RC LUX

ITA

POL

CZE

AUT

DEU

FIN

SVN

NLD

DNK

IRL

NOR

GBR

SWE

TUR

PRT

CHE

CAN

EST

OEC

DIS

LUS

AIS

RAU

SNZ

LJP

NCH

LM

EXKO

R

0

10

20

30

40

0

10

20

30

40Percent of 65-74 year-olds in the labour force, 2014

Raise the pension premium for workers who decide to retire later. Strengthen life-long learning, especially among workers with

vocational degrees. Strengthen financial incentives for enterprises to prevent health risks.

Source: OECD (2015), OECD Labour Force Statistics (database).

24

0

100

200

300

400

500

600

700

800

900

1000

0

100

200

300

400

500

600

700

800

900

1000

NOR

AUS

NZL

ISL

CHL

FIN

SWE

IRL

MEX

CAN

FRA

LUX

ESP

ISR

DNK

CHE

USA

PRT

AUT

GBR TU

RES

TNL

DSV

NKO

RJP

NDE

UBE

LIT

APO

LCZ

ESV

KG

RC HUN

Local air pollution is harmful to human health

Annual deaths from air pollutionPer million inhabitants

Source: OECD(2014), The Cost of Air Pollution

Eliminate tax exemptions for environmentally harmful behaviour. Tax cars according to their NOx emissions and tax large NOx

emitters.

25

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