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The following OECD assessment and recommendations summarise Chapter 6 of the Economic Survey of Switzerland 2006 published on 6 January 2006.
How can labour market performance be raised further?
Beyond efforts to boost productivity, a higher rate of labour utilisation would also raise potential output. Despite very high employment rates, the full-time participation of women in the labour market is hindered by a number of obstacles. Removing these would also help offset the expected decline in labour force growth due to population ageing. Factors that maintain female participation at a low level include the system of joint household taxation, which, combined with a very progressive tax schedule, creates heavy work disincentives for married women. A reform proposal to remove the marriage penalty, if accepted, would exempt 50% of the second labour income from taxation (with a maximum exemption of CHF 55 000). In the longer run, it would be even better to switch to a separate tax regime or at least offer the option of separate taxation, as is the case in most other OECD countries. The second major obstacle is the lack of affordable full time childcare, both for pre school and school age children. Federal efforts to develop care facilities for young children, including out of school care, have produced mixed results. The provision of childcare facilities is hindered by the decentralisation of responsibilities to the municipal level, where coordination is lacking and the economic and tax benefits from increased women’s activity are only partly internalised. Similarly, the Confederation has little say on the age of compulsory schooling, the development of early childhood education and schooling hours, which are typically short and non-continuous. A recent proposal to give the Confederation the right to set uniform rules for compulsory schooling (and higher education) if the cantons cannot agree among themselves (and/or with the Confederation) could overcome coordination issues, but it would require a constitutional vote. Greater involvement of the Confederation, especially by ensuring a better co ordination across levels of government could also help overcome problems in the provision of early childhood education and care. Moreover, the supply and quality of childcare could be more effectively raised and the matching with parents’ needs could be improved by redirecting part of the public funding for childcare from the suppliers to the parents. Efforts should focus on raising the provision of childcare rather than increasing child benefits further, since these tend to reduce labour supply by mothers and poverty levels are relatively low.
The signing of an agreement for the free movement of persons with the EU and its extension to new member countries should allow Switzerland to reduce labour shortages during cyclical peaks, and import high- and low skilled labour complementary to the domestic labour force, thereby somewhat reducing the risk of delocalisation of firms. However, the opening will be gradual and until at least 2014 Switzerland retains the right to re impose quotas. Because of this, and because incentives to migrate will diminish as living standards in Eastern European countries catch up, the agreements are not expected to lead to large migration inflows. However, even though only small inflows are expected, measures were introduced to avoid social dumping, such as the possibility to impose minimum wages and/or extend collective agreements. The various measures protecting incumbents should be used with care in order not to undermine the flexibility of the labour market.
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Return to the Economic Survey of Switzerland 2006
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
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For further information please contact the Switzerland Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Claude Giorno and Florence Jaumotte under the supervision of Peter Jarrett.
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