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The following OECD assessment and recommendations summarise Chapter 2 of the Economic survey of the United States, published on 29 May 2007.
Structural reform can help sustain productivity gains and boost employment
Even if productivity growth can be sustained at a reasonably good rate, this is unlikely to prevent potential output growth from slowing, given the trend decline in labour force participation. Many labour market trends reflect changes in preferences and demography that governments cannot influence. Nevertheless, there are some policy measures to boost employment that should be helpful. For instance, the disability insurance system appears to be discouraging a rising share of the population from staying in the workforce, probably to an unnecessary degree. This partly reflects replacement rates that have risen to unusually high levels, partly as a result of trends in health costs. To combat adverse incentive effects, these high replacement rates should be reduced and screening requirements tightened. Moreover, raising the age at which workers become eligible for full Social Security benefits would discourage premature retirement and also make the Social Security system financially more secure. Finally, with some evidence that increases in tax rates tend to reduce labour supply, efforts to restrain taxes and government spending may also be beneficial in this regard.
With skill differentials a major source of inequality, focusing on improvements in education is of key importance (see Chapters 5 and 6). Raising the minimum wage is a poor means to address inequality and poverty. Even though the effects of recent legislation are likely to be limited, such a measure helps many workers who are not poor, fails to help many who are poor, and risks job losses. The Earned Income Tax Credit should be raised, because it reduces poverty more effectively than the minimum wage and delivers more favourable employment outcomes.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of the United States 2007 is available from:
For further information please contact the US Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Hannes Suppanz and Peter Tulip under the supervision of Patrick Lenain.