Foundations for Growth and Competitiveness 2026

United States

The US economy has significantly outperformed its OECD peers over the last several years, largely on account of an improvement in labour productivity in the services sector. Meanwhile, manufacturing productivity has remained stagnant. Employment and investment rates, while having rebounded somewhat during the post-pandemic period, remain low by OECD standards.

Growth-enhancing reforms include those that encourage parents, especially secondary earners, to remain in the labour force, and reduce red tape to spur investment in housing and infrastructure. Reviving manufacturing productivity growth is also key, particularly by addressing critical labour shortages. The substantial increase in the restrictiveness of US trade policies will lower growth in the absence of a resolution of ongoing trade tensions.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Labour market: Encourage labour force participation through enhanced childcare benefits

Gains in labour force participation rates, particularly those for working-age women, have stagnated in recent decades, with the inadequacy of childcare benefits cited as a major factor. Out-of-pocket childcare costs are high by OECD standards, the availability of childcare is limited for many Americans, and a large proportion of families eligible for childcare subsidies do not receive them. In addition, the United States is the only OECD country without paid maternity leave at the national level, and one of just nine OECD countries that does not have paid leave for fathers.

Recommendations

✓ Raise public support for childcare, expand the levels of income eligibility for public programmes, and ensure all families eligible for childcare subsidies can access them.

✓ Introduce a national paid parental leave entitlement.

Human capital: Ensure that critical industries can satisfy their skill requirements

Future productivity and the expansion of key industries require high-skilled workers with technical capacities. However, significant labour shortages are anticipated in many of these fields amidst declining college enrolment rates for men and the prevalence of students who stopped higher education without earning a credential. Foreign-born individuals are a potential source to help address these shortages, but the US employment-based visa system is ill-suited to give priority to STEM graduates and recent policy actions could disrupt the pipeline of high-skilled workers that initially come to the US on student visas.

Recommendations

✓ Implement measures, such as an expansion of the federal Pell grant programme targeting low-income students, to reduce post-secondary education costs and increase enrolment.

✓ Implement policies like Reconnect grants to colleges that re-engage higher education students who recently stopped studying.

✓ Redesign temporary and permanent employment-based immigration visas to better align them with demand for professionals in priority fields.

Regulation: Remove impediments to urban development and innovation

The US faces a structural economic problem of constrained supply, driven by regulatory and institutional bottlenecks that hinder growth in key sectors. Excessive zoning laws and environmental review processes have limited housing development, contributing to affordability crises in major urban centres. Similarly, outdated procurement and permitting systems delay public infrastructure projects, increasing costs and eroding public trust. Meanwhile, rigid funding mechanisms and bureaucratic oversight have stifled scientific innovation.

Recommendations

✓ Reform local zoning laws to allow for higher-density, multifamily housing development in urban areas, particularly near transit corridors, with a view to improving access to public transport.

✓ Streamline environmental and permitting reviews for public infrastructure by setting clear timelines and limiting redundant bureaucratic oversight.

✓ Increase flexible, long-term funding for scientific research with fewer administrative constraints to encourage risk-taking and breakthrough innovation.

Fiscal: Achieve fiscal sustainability while improving tax system efficiency

There is a large structural budget deficit, and public debt is high and rising. Higher government borrowing can weigh on the economy by crowding out private investment. In addition, the tax system is overly complex, tax changes in recent decades have narrowed the tax base, and consumption taxes, a relatively efficient source of revenue, account for a much smaller share of taxes in the US than in most other OECD countries. A simpler, more efficient tax system would be growth-positive over the medium term.

Recommendations

✓ Adopt a simple medium-term debt ratio proposed by the President and approved by Congress to improve accountability.

✓ Undertake a package of tax measures and targeted spending restraint to put the debt ratio on a more prudent path.

✓ Introduce a broad package of tax reforms, including actions to reduce tax expenditures, broaden the tax base, increase rates, and develop new revenue sources.

Trade: Resolve tensions and uncertainty with trading partners

The US economy and most workers derive significant benefits from integration into global value chains. However, US trade policies have become more restrictive in recent years, and substantially more so this year, with the average effective tariff rate on imports rising to its highest level since World War II. These restrictions increase consumer and business costs, limit choice, reduce competition, worsen allocative efficiency, and dull the potential for knowledge spillovers from abroad. Moreover, the volatile nature of tariff implementation has led to high economic policy uncertainty, which has negative effects on economic activity, especially investment. The US also imposes higher non-tariff barriers than its OECD peers in services trade.

Recommendations

✓ Lower tariffs and other trade barriers, including by concluding trade agreements that ease tensions with trading partners.

✓ Conduct economic assessments of the benefits, costs, and international spillovers of any further trade restrictions before implementation.

✓ Further improve trade facilitation and reduce regulatory barriers for trade in services.

Recent progress on structural reforms

Paid leave initiatives have stalled at the federal level in the past but have made some headway at the state level in recent years. Similarly, policies to expand grant and scholarship programs that target lower-income students and re-engage higher education students that recently stopped studying have not been enacted at the federal level but have inspired similar state-level models. Efforts to reduce red tape to encourage investment have become a popular target for policymakers, with California recently announcing that it would scale back an environmental law that has been blamed for worsening the state’s housing shortage and homelessness crisis.