The organisation, a forum for economic policy debate among its 25 industrialised member-states, says the reforms should be backed by stable anti-inflation policies, reduced budget deficits and less wasteful public spending. Only a stable macro- economic backdrop will allow sweeping structural reforms of the labour market to be successful. It calls for wholesale reform of unemployment and related benefit systems, shifting the emphasis from semi-permanent income support to active measures that assist re-employment.
'Public spending on labour market programmes in almost all countries is still dominated by passive measures,' the OECD says. Within this sweeping recommendation it urges countries to restrict unemployment benefit to periods of intense job-searching where finding a job seems likely.
Time limits should be imposed on benefits of indefinite duration where people appear employable. And the transition from income support to work should be made more financially attractive by lowering income tax and social security charges on low earnings, and by providing 'in-work' benefits to low- paid workers. This would eliminate in extreme circumstances the so-called 'poverty trap'. Benefits for those taking part-time jobs should not be drastically reduced.
Long-term benefits should depend on whether people participate in 'active' labour market programmes aimed at putting them into work. Unemployment will be reduced by increased flexibility of wage rates and lower non- wage labour costs, like employers' social-security contributions.
As a result, the OECD offers little support for statutory minimum wages. If governments have a goal of redistributing income, this is not the right way to achieve it. Countries that have minimum wage levels should adjust them to minimise the adverse impact they have on opportunities for unskilled labour or the young. They should be watered down to differentiate between age and region and indexed to prices rather than more buoyant average earnings.
In a clear message for Britain, the OECD says: 'If it is judged desirable to maintain a legal minimum wage as part of an anti-poverty strategy, consider minimising its adverse employment effects.'
Non-wage costs should be cut by lowering taxes on labour and shifting to other taxes, like taxes on income or consumption. Restrictions that impede part-time work and working-time flexibility should be removed, by adjusting the tax and benefit system and offering older people incentives to work rather than retire early. The OECD also hints that impediments to working on weekends and statutory holidays should be eased.
Working skills must be improved, the OECD said, and a lifetime of learning embraced to foster creation of high- wage high-skill jobs. It thus gives important backing to Labour's advocacy of training levies or grants to stimulate companies to develop their workers' skills and promote off-the-job training over a working lifetime.
But the agency begins by urging better provision of pre- school programmes, fewer early school-leavers and improved student performance by broadening curricula and learning methods. Greater scope for parents to choose schools, and better incentives to motivate teachers would also help.
It warns that not enough emphasis is placed on training as opposed to higher education. 'There is a danger of a shortfall of further education and training, and of a surplus of academic qualifications,' it says. In a partial return to the apprenticeships of the smokestack age, it calls for partnerships between industry and education to support apprentice-style training, and national standards set for recognised qualifications in new skills.
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