View from City Road: The OECD dodges the real issue

Forget the headlines. The OECD's much-trumpeted jobs report is in truth no more than a competent marshalling of received wisdom on employment policy, despite the way it has been seized upon by the besieged Government to support its view of the world. As one would expect from a document drawn up by 24 countries, it has something to please everyone.

The report outlines a conventional diagnosis of the unemployment problem in advanced nations. Technological progress and competition from low-wage countries have shifted demand from unskilled to skilled workers, but industrialised countries have been too inflexible to adapt.

The problem has manifested itself in two ways. In the US the labour market has become polarised between highly paid, highly skilled jobs and low-paid, low-skill jobs, resulting in horrendous inequality between rich and poor. In Europe the creation of low-wage jobs has been hindered by welfare state and labour market regulations that reflect an unwillingness to accept US inequality. So large numbers of people find themselves unemployed, often for long periods.

Britain has been moving from the European to the American model, suffering a dramatic widening in inequality and creating more low-paid, low-skill jobs.

In pursuit of flexibility, the OECD argues for the abolition of minimum wages; cutting taxes on low earners; making it easier for employers to hire and fire, and reducing disincentives to work when benefits are withdrawn from the low-paid.

At the same time the OECD argues that governments should help people to compete in this flexible world by providing better training and education, helping small businesses to set up, and supporting basic research and international hi-tech joint ventures.

This is all fine and dandy; it certainly sounds a note that most British business people would thoroughly agree with. But these policies are expensive and sluggish in their impact. In practice they would not be possible without higher taxes on relatively high earners - an issue the OECD has dodged.