By Pierre Beynet, Head of Division, OECD Economics Department

Estonian growth is picking up again strongly in 2017 and the level of activity has finally surpassed its pre-crisis level, almost 10 years after the outset of the financial crisis (Figure 1, panel A). However, poverty remains among the highest in the OECD (Figure 1, Panel B).

To make growth more inclusive, the 2017 OECD economic survey argues that Estonia should make its tax and benefits policies more redistributive, but also use more actively its large fiscal space by allowing a small fiscal deficit in the longer term (OECD, 2017).

Market income inequality is high (Figure 2, Panels A), but the redistributive effects of the Estonian tax and benefit system is low (Figure 2, Panel B). It leaves a considerable proportion of the population at risk of poverty, notably the unemployed, disabled and low-educated. The old-aged are also more at risk of poverty, in particular because of the relatively low level of pensions.

The government is already working on important redistributive measures. For instance, the planned increase in the personal income tax allowance, which is steeper at lower wage levels, will improve the progressivity to the tax system from 2018. However, the lowest income earners will not benefit from this measure since they are exempt from the personal income tax. Besides, the level of spending allocated to protection of the most vulnerable is low: around 31% of total public spending in 2014 went on social spending, some 9 percentage points less than the EU average. The targeting of social programmes is also poor, with means-tested measures accounting for a low share in total social spending.

Fiscal room is available for further measures to make growth more inclusive. Estonia has the lowest gross public debt relative to GDP in the OECD (Maastricht debt is at around 10%) and a structural budget surplus since 2009. Fiscal policy has been tight over past years, despite economic slack. The government plans a small structural deficit in 2018, 2019 and 2020, which is welcome, but the current fiscal rule imposes a return to a balanced budget in structural terms from 2021.

Beyond 2020, financing growth-enhancing measures could require revising the fiscal rule. Maintaining a small structural deficit for an extended period would not undermine the long-term sustainability of public finances. For instance, a persistent deficit of 0.5% of GDP would result in Maastricht debt reaching less than 11% of GDP in 2030 (Figure 3). In the same vein, increasing the deficit by 1% of GDP would still maintain a prudent debt level, even if coupled with 1 percentage point lower inflation and GDP growth (Figure 3).

References

OECD (2017), OECD Economic Survey of Estonia, OECD Publishing, Paris.

by Andrés Fuentes Hutfilter and Naomitsu Yashiro, Latvia Desk, OECD Economics Department

Latvia’s economy is growing strongly. Driven by the recovery of exports and investment as well as strong private consumption, real GDP growth is expected to strengthen from 2% in 2016 to around 4% this year and next. Exporters have gained market shares. More disbursement of EU structural funds is boosting investment. Real wage growth is supporting private consumption. Growth is also underpinned by the government’s strong track-record in pursuing pro-growth reforms. Administrative burdens to entrepreneurship have been reduced and the efficiency of the judiciary has been enhanced. The quality of education and training has improved and active labour market policies have been upgraded. Government finances are solid: The government budget was in balance in 2016 and government debt is 40% of GDP, lower than in most OECD countries.

Important challenges remain. Productivity is lower than in other Baltic or central European economies and the gap with leading OECD economies remains large (chart A). Yet, productivity growth has slowed after the financial crisis, as elsewhere. To converge to the living standards of high income countries, Latvia has to reinvigorate productivity. As the 2017 Economic Survey of Latvia argues, better integration in global value chains, especially in sectors characterised with rapid technology changes, is key. Latvia has made progress in diversifying its exports. For example, exports of ICT services have increased. But most exports still rely on low-value added activities, such as wood processing or transit transport services.

Poverty is among the highest in OECD countries (chart B) and is concentrated in some regions in part reflecting high unemployment. Lack of access to good and affordable housing makes it more difficult for low-income workers to move to well-paying jobs. Access to health services and higher education are also uneven and limit access to economic opportunities for low income households. Many young Latvians emigrate. These issues and policies to address them are analysed in the 2017 Economic Survey of Latvia.

Further reading

OECD (2017), OECD Economic Surveys: Latvia 2017, OECD Publishing, Paris.

by Nicola Brandt and Pierre Guérin, France Desk, Country Studies Branch, OECD Economics Department

Economic growth is strengthening in France, supported by consumption and investment, and the labour market is gradually recovering, as past reductions of comparatively high labour and business taxes are starting to take effect. However, GDP and employment growth are still lagging relative to the euro-area average (Figure 1). As in many other OECD countries, a weakening of productivity gains is limiting the government’s ability to continue providing its citizens with a high level of social protection and good prospects for high-quality jobs and rising incomes. The new government is passing a major labour market reform. It is also reducing business and labour taxes on low wages and plans to strengthen workers’ rights to unemployment benefits, while tightening obligations to accept job offers. It intends to make the pension system more universal by aligning rights across different regimes, and ease access to high-quality vocational training and adult learning. This ambitious reform agenda can make an important contribution to securing stronger and more inclusive growth and job creation.

High levels of public spending, while contributing to low poverty and good health care, requires burdensome taxes that limit firms’ ability to invest and create jobs. The new government has set an ambitious target to reduce public expenditures by three points of GDP by 2022. The recently released OECD Economic Survey of France proposes structural reforms that would help cut inefficient and non-essential spending, while better targeting public money where it is most needed. This includes lowering the relatively high public payroll, by not replacing every public servant who retires, reducing overlap in sub-central governments’ competencies and merging France’s often particularly small municipalities, aligning different pension regimes to increase transparency and reduce administrative costs, and gradually raising the minimum retirement age. In health care, improving prevention, while limiting unnecessary prescriptions and treatments would go a long way in containing spending growth, while preserving and further improving overall good health outcomes. Education spending needs to be better targeted at schools with many struggling pupils and public infrastructure spending should focus on poor neighbourhoods that suffer from poor connection to public transport.

Unemployment is still high, and spells are long, particularly for young people; too many of them are not in employment, education nor training. Those who do work often find it difficult to  begin their careers, as most new hires are on temporary contracts few of whom are transformed into permanent jobs. The ongoing labour market reform aims at facilitating negotiations in small firms and simplifies the governance of firm-level institutions representing employees. Also, the needs of small and medium-sized enterprises (SMEs) will be better taken into account as sector-level agreements will have to include explicit provisions for them. This will allow firms and workers to better adapt their working conditions to their specific needs and makes it easier for small and innovative firms to enter the market and grow, promoting productivity growth. Moreover, labour courts setting indemnities for unfair dismissals will now be constrained by a binding range.  Compared to other countries, indemnities in France are indeed particularly variable, and limiting their range will reduce uncertainty for employers regarding dismissal costs, reducing hurdles to hiring on open-ended contracts. However, the Survey also points out that the quality of France’s labour court procedures needs to improve. They  are unusually lengthy, and judgements are appealed in roughly 70% of the cases. One solution would be to introduce professional judges to support the lay assessors who currently handle the process. France is indeed the only OECD country besides Mexico where such legal actions are reviewed by lay assessors alone.

Too many French adults have weak basic skills (Figure 2). Access to training is hampered by a complex training system that is characterised by a large number of training and financing schemes.  The recently introduced personal training account (compte personel de formation, CPF) is difficult to use and provides access only to a limited number of training offers that differ by sector. The government intends to  implement a national vocational training plan of 15 billion euros.  To maximize the impact of that investment the Survey recommends improving information about providers  by strengthening  the quality label system so that workers become fully aware of the label and can understand it. The CPF should be simplified and give access to all training measures that have obtained a quality label. The number of competing schemes should be reduced to concentrate financing on one measure that works.

Further reading

OECD (2017), OECD Economic Surveys: France 2017, OECD Publishing, Paris.

By Jennifer Ribarsky, Head of Sectoral and National Accounts, OECD Statistics Directorate

A key indicator of households’ material conditions, or economic well-being, is per capita household income, after deducting taxes and social contributions and including social benefits. It provides a better gauge than gross domestic product (GDP) of the resources households have at their disposal to buy goods and services or save for the future.

Over the very long term the average annual growth rates of the two statistics tend to be similar, since the incomes earned by households account for a large share of the total income generated through production in the economy, as recorded by GDP. However, over shorter time periods, especially during severe economic recessions or rapid expansions, trends in household disposable income and GDP may differ significantly. Many factors can contribute to such a divergence; for instance, changes in the government’s policies related to taxes or social benefits, or in how companies allocate their earnings between dividends, retained earnings and compensation of employees.

To see these factors in action, let’s look at recent data for Norway and Greece. Figure 1 shows how GDP and household income have evolved there since the first quarter of 2007, right before the start of the global financial crisis. The figure shows that in the crisis years 2008-2009, GDP per capita was falling in both countries, though faster in Greece. However, government intervention – though a reduced budget surplus in Norway and an increased deficit in Greece – cushioned households from the negative effects of the economic contraction.

Starting from 2010, the picture in the two countries becomes very different. With Greece’s fiscal deficit hitting 15% of GDP in 2009, the European sovereign debt crisis and a deep and prolonged recession, the government ended its support to household income. This retrenchment in government spending, as well as the substantial falls in compensation of employees and self-employed income, meant that household incomes in Greece began falling precipitously in 2010. Even though Greece’s per capita GDP has started to recover slightly in recent quarters, household disposable incomes today remain near their lowest levels since the precipitous decline.

Norwegian households have been in a much more favourable position. As a resource rich country, Norway’s  revenue from the oil and gas sector has for years resulted in large government surpluses that were channelled into a sovereign wealth fund. The Norwegian government continued to sustain household incomes after 2010 by reducing the surplus saved into the fund. However, government intervention was not the primary driver of the longer term Norwegian trend of household income growth outpacing GDP. Since 2007 the share of company earnings going to compensation of employees has increased, and the share going to dividends or retained earnings has declined. Rising employee compensation is thus the main reason for Norwegian household incomes growing 20% more than real GDP per capita since just before the crisis, though the gap has narrowed slightly in the last two years.

To see how households are doing in other OECD countries, visit our dashboard on households’ economic well-being which contains a range of household indicators and has recently been updated to include data through Q1 2017.

Further reading:

Ribarsky, J., C. Kang and E. Bolton  (2016), “The drivers of differences between growth in GDP and household adjusted disposable income in OECD countries“, OECD Statistics Working Papers, No. 2016/06, OECD Publishing, Paris.

by Gabriel Machlica, Slovak Republic Desk, OECD Economics Department

Slovakia’s economy continues to perform extremely well. More and more people are able to find jobs. Employment and hours worked are already at the highest since independence. The unemployment rate has fallen below historical norms. Nevertheless, more qualified people are needed. Difficulty in hiring qualified labour has become the main complaint of Slovak businesses. Shortages affect over half of all manufacturers and are particularly acute in the automotive sector. More than 80% of the sector’s suppliers signalled that labour availability and quality are major problems. Moreover, the demand for qualified IT workers is estimated to be four times the supply.

In this regard, the 2017 Slovak Economic Survey argued that the authorities should step up efforts to improve education, ease barriers for foreign workers and enhance labour market access for disadvantaged groups. At the same time, more focus should be placed on the large Slovak diaspora and encourage them to return home.

Almost one-tenth of the population now lives abroad, which is well above the OECD average (Figure 1, Panel A). Most of them left the country in the last decade. Slovak emigrants are mostly young and educated. Unfortunately, many Slovak emigrants with tertiary education work in low skilled jobs abroad (Figure 1, Panel B), which represents sunk costs for the education system.

The government should try harder to attract return migrants. Although there are already two schemes to do so, they both support only a limited number of individuals with marginal impact. The authorities should scale up these programmes and monitor their effectiveness to ensure continuing good value for money. More importantly, the government should also develop a comprehensive strategy to maintain ties with the large expatriate community. A new information system could connect with the diaspora and facilitate its engagement. It should be able to target and address emigrants soon after emigration, as the probability of return decreases after five years of living abroad. Many OECD countries are providing online portals with details on job, training and business opportunities. These portals also help young adults studying abroad find information about work and internship offers back home, and companies could use the contact network to find employees among those studying abroad.

Encouraging emigrants to return home can help to increase the supply of skilled labour. This will  address labour shortages. At the same time return migrants can bring home new skills, networks and financial capital, which can help spur innovation and growth.

Further reading:

OECD (2017), OECD Economic Surveys: Slovak Republic 2017, OECD Publishing, Paris. http://dx.doi.org/10.1787/eco_surveys-svk-2017-en

Pungas, E., O. Toomet, T. Tammaru and K. Anniste (2012), “Are Better Educated Migrants Returning? Evidence from Multi-Dimensional Education Data”, NORFACE Migration Discussion Paper, No. 2012-18. www.norface-migration.org/publ_uploads/NDP_18_12.pdf

by Rory O’Farrell, Slovenia Desk, OECD Economics Department

While workers in many OECD countries are worried whether robots will take their jobs, the inhabitants of the Slovenian town of Kočevje are less concerned. In 2016 Japanese robotics firm, Yaskawa, announced plans to produce robots in Kočevje, which could create up to 200 jobs. This is a continuation of a pattern seen since independence whereby Slovenia has continued to shift from traditional manufacturing to business services and high-tech production. However, not all Slovenians have been included in this progress.

Modernisation has mainly been achieved by training young Slovenians to fill new occupations. In contrast, those with obsolete skills tend to retire or become unemployed rather than retrain, leaving Slovenia with persistent long-term unemployment, and amongst the lowest employment rates of older workers in the OECD. An ageing population means this is no longer sustainable, and labour shortages are already emerging. To meet the need for skills that complement investment in knowledge-based capital, and the new technologies brought by foreign firms, more responsive education and training solutions are needed.

Slovenia performs poorly in terms of providing workers the opportunity to retrain later in life. While it has an effective system of vocational education, workers lack some basic skills that enable them to retrain later in life. Also, although tertiary attainment has increased rapidly, high fees for part-time students make it unattractive for older Slovenians to pursue tertiary education. There is also a lack of incentives to retrain, as wages rise automatically with age and thus do not reflect the relative demand for different occupations, and unemployment and disability insurance have served as pathways to early retirement.

The just-released OECD Economic Survey of  Slovenia outlines how a more flexible education and training system can help create a more flexible labour market. Policies such as greater problem-based learning for vocational students, more adult training, and equalising fees for part-time and full-time students can help workers adapt to future changes in the labour market. This can help ensure all Slovenians benefit from future economic growth.

Find out more:

OECD (2017), OECD Economic Surveys: Slovenia 2017, OECD Publishing, Paris.

by the Italian Ministry of Economy and Finance, Pier Carlo Padoan, Italy’s Minister of Finance, was OECD Deputy Secretary-General and Chief Economist from 2007-2014.

Growth in Italy is taking place more slowly than in other Eurozone countries. Public debate about this fact offers several explanations but rarely juxtaposes long-period trends with recent policies.

It is common knowledge that – among other things – low productivity is one of the main causes of the poor performance of the Italian economy. Red tape, the relatively limited openness to competitiveness of some professional services, the tax burden, the limited size of SMEs, and the need to improve secondary education and the efficiency of the judicial system are – among other factors – affecting our ability to grow the economy.
All such structural obstacles to stronger growth are targets of the ambitious reform program that has been under way since 2014. In the view of national authorities, structural reforms are re-shaping the economic potential of the country, while the combination of expansionary monetary policy undertaken by the ECB and appropriate fiscal policies adopted by the Government is allowing for conditions that enable the reform process.  Let’s focus on what “appropriate” means for fiscal policy in Italy at the present time.

The Government believes that a fiscal adjustment is definitely needed for a country with a debt as high as Italy’s.  However, the decision about the pace of the adjustment is crucial as it may potentially affect the prospects of the economy, including the private sector.  While a slow pace of adjustment might not be effective for the purposes of debt reduction, an adjustment that is too fast may prove to be detrimental to the economy, and therefore to the debt-to-GDP ratio.

The situation in which the Italian authorities must move can be described as a “narrow path”: on one side, high debt looms (implying exposure to external financial shocks) while on the other side an infant recovery needs to be nurtured in order to rid ourselves definitively of the double–dip recession. This picture may help in understanding the Government’s search for a balance among such divergent needs. The search has apparently been successful in the latest four budgets. Since 2014 the Italian Government has managed to reduce the deficit-to-GDP ratio – and to stabilise the debt-to-GDP ratio by that means. At the same time, the composition of both revenue and spending has been re-arranged to improve the business environment and to support internal demand.

In order to appreciate the results of the “narrow path” policy mix, we must look at the trends for debt, deficit and GDP over a lengthy period of time. Between the years 2000 and 2013, the Italian economy alternated 4 years of recession, 4 years of positive but low growth (below 1 percent), 5 years of higher growth (between 1 and 2 percent). Nothing exciting at all. After the double–dip, growth turned positive again in 2014 (a small improvement of 0.1%), then it slowly increased in the following years (+0.7% in 2015 and +0.9% in 2016). For 2017, both the IMF and the Bank of Italy forecast better growth of 1.3%. Once again, a performance that nobody will consider at all satisfactory, but certainly it’s a reversal of previous uncertain trends.

Now when we look at the trend of the deficit we can see that such growth is not the result of an expanding budget. On the contrary, it is based on a sound primary surplus and a constantly contracting deficit (which is decreasing from 3.0% of GDP in 2014 to the expected 2.1% in 2017 – and even lower according to latest forecasts). Which will allow the debt-to-GDP ratio to stabilise notwithstanding very low inflation.

The comparison with other major economies in Europe since 2009 shows that Spain, France and the UK associate growth rates higher than Italy with a negative primary balance, whereas Italian governments have managed to keep the primary balance in positive territory since 1993 (with the single exception of the year of the deepest crisis, 2009). The other large country together with Italy that manages to combine positive primary balance and growth is Germany.

The road to recovering a higher growth potential is still long, but some of the reforms are beginning to bite. To mention some examples, the labour market is now more dynamic, thanks to the Jobs Act introduced early in 2015; cooperation between taxpayers and the tax administration is improving, as the principles of cooperative compliance and preventive assessment of tax planning are becoming common behaviour; the Italian customs rank #1 in the “Trading Across Borders” study (a component of the World Bank’s Doing Business project) due to extensive digitalisation.

The fiscal stance adopted for the last four budgets has contributed to alleviating the upfront costs associated with the introduction of reforms, and therefore to create favourable conditions for reforms to be accepted by all stakeholders. Currently, public investment in strategic infrastructure is rising, the tax burden on both families and business has been cut, and selective tax breaks have stimulated private investment in innovation.

At the same time, the stock of nonperforming loans is now declining. The NPLs have been a consequence of the crisis, but also contributed to its worsening, as they have limited the flow of lending from banks to the economy. The increase in lending to the real economy, along with new financial instruments introduced by the Government in recent years (for instance mini-bonds and individual savings plans focusing on SMEs) will sustain the recovery, which will reinforce the soundness of public finances.

The outlook is for an increase in the real growth rate combined with higher inflation, a continuing primary surplus and modest implicit debt (thanks to past pension reforms), all leading to a decline in public debt.

Further reading:

The Narrow Path | Issue #1 | July 2017 | www.mef.gov.it | Italian Ministry of Economy and Finance

Italy’s reforms are paying off but challenges remain | ecoscope – February 2017

OECD (2017), OECD Economic Surveys: Italy 2017, OECD Publishing, Paris

by Pierre-Alain Pionnier, Head of CLIs, Prices & Environmental Accounts Section, Francette Koechlin, Head of Prices & PPPs Unit, and Sophie Bournot, Statistician for PPPs, OECD Statistics Directorate

All travellers know that the prices of goods and services vary between countries. In order to capture these price differences, Eurostat and the OECD collect data on the prices of identical goods and services in their member countries, and compile “Purchasing Power Parities” (PPPs) – conversion rates that neutralise price differences between countries. The collection spans hundreds of products and allows PPPs to be calculated for various classes of goods and services, and for macroeconomic aggregates such as gross domestic product (GDP). PPPs help economists and other users of statistics who want to compare GDP, income and consumption across economies with a proper adjustment for price differentials, in order to better assess the size of economies, productivity and material well-being.

Purchasing power parities (PPPs) compare the prices of similar products, expressed in different currencies

The Big Mac index from The Economist magazine is a well-known example of an international price comparison of a product with similar characteristics across countries. In its latest edition (January 2017), this price comparison shows for instance that the average price of a Big Mac is 5 dollars in the United States and 4 euros in France. So the “Big Mac PPP” between France and the US is the ratio of 4 euros to 5 dollars (or equivalently 0.8 euro to the dollar).

Price relatives vary from product to product, so many products must be sampled to construct PPPs for entire economies

Because price relatives vary from product to product, the OECD and Eurostat collect prices on around 2,500 products. This allows PPPs to be constructed for different groups of products, and to compare price levels, once the prices have been converted into a single currency. This is illustrated in Figure 1, showing how prices for different product groups differ across countries.

The top part of Figure 1 shows that the prices of durable goods (e.g., cars, TVs and computers) vary less between countries than the prices of services (e.g., housing, education and health). This is because durable goods are frequently traded across countries, which tends to equalise their price levels. On the other hand, services are often purchased locally and are less traded across countries, thus making it possible to have larger price differences across countries. The comparison shows that services tend to be more expensive in high-income countries (e.g., Switzerland) than in lower-income countries (e.g., Mexico). This is the so-called Balassa-Samuelson effect: the higher productivity in advanced countries for the production of tradeable goods leads to higher wages across all sectors in these countries. Since cross-country differences in services productivity are smaller than in tradable goods productivity, these higher wages lead to higher services prices in advanced countries.

The bottom part of Figure 1 shows that overall consumption prices tend to be higher in high-income countries, reflecting the large share of services in the consumption basket of households (typically around 70%). Furthermore, overall consumption prices and Big Mac prices show a similar pattern, although for some countries the difference between Big Mac prices and overall consumption prices can be quite significant. In Australia for instance, Big Mac prices are close to the OECD average whereas overall prices for household final consumption are nearly 40% higher.

Using the Eurostat-OECD PPPs is the best way to compare macroeconomic aggregates across OECD countries: better than using exchange rates or PPPs based on single products

Perhaps the most intuitive way to compare macroeconomic aggregates across countries when they are expressed in different currencies is to use exchange rates. However, such comparisons do not account for the fact that prices are different across countries, even if expressed in the same currency. Making it possible to adequately adjust for price differentials is precisely the purpose of PPPs.

Figure 2 shows that conclusions derived from international comparisons of per-capita household final consumption, a useful indicator of material well-being, vary significantly depending on whether exchange rates or PPPs are used to convert consumption in national currency to a common unit. In 2014, the differences reached up to 70% for Norway, where average consumption prices were well above the OECD average (see Figure 1). The difference between measures based on PPPs and relative Big Mac prices is usually lower. Nevertheless, and consistently with Figure 1, measures based on relative Big Mac prices tend to overstate consumption per capita in high-income countries and to understate it in lower-income countries, as compared to measures based on PPPs which take into account the whole range of goods and services consumed by households.

The measures explained

Household actual individual consumption (AIC) is the measure of household final consumption used in this article. It covers all goods and services actually consumed by households, including both consumer goods and services purchased directly by them (“household final consumption expenditure”), and services provided by government and non-profit institutions for free or at significantly reduced prices (e.g. health and education services). In a nutshell, AIC measures what households consume and not only what they directly pay for.

Purchasing Power Parities (PPPs) convert different currencies to a common currency and, in the process of conversion, equalise their purchasing power by eliminating the differences in price levels between countries. Thus, when GDP or consumption values are converted to a common currency with PPPs, they are valued at the same price level and so reflect only differences in the volumes of goods and services purchased in the countries. In their simplest form, PPPs are nothing more than price relatives that show the ratio of the prices in national currencies of the same good or service in different countries. For example, as mentioned in the text, if the price of a Big Mac is 4 Euros in France and 5 Dollars in the United States, then the PPP for Big Macs between France and the United States is the ratio of 4 Euros to 5 Dollars, or 0.8 Euro to the Dollar, meaning that for every Dollar spent on a Big Mac in the United States, 0.8 Euro would be spent in France to obtain the same burger. If the currency exchange rate is one Euro to the Dollar, it can be concluded that Big Macs are cheaper in France than in the United States. The OECD and Eurostat compile PPPs for large baskets of goods and services.

Note that the Eurostat-OECD PPPs are not suitable for gauging the under- or overvaluation of currencies since PPPs cover the whole range of goods and services produced or consumed in an economy, including many non-tradeable ones. Furthermore, currency exchange rates are also affected by capital movements.

Where to find the underlying data?

The OECD database on PPPs is available on OECD.STAT and includes the following datasets:
> Annual PPPs and exchange rates: this dataset contains annual PPPs for GDP, household actual individual consumption and final consumption expenditure, as well exchange rates for OECD countries and some non-member economies.
> 2014 PPP benchmark results: this dataset contains the detailed results of the latest (2014) Eurostat-OECD price comparison for the 47 countries that participated in the 2014 round of the Eurostat-OECD PPP Programme. Similar detailed results are also available for 2011, 2008 and 2005.

In addition, The Economist’s online database contains local Big Mac prices in up to 56 countries from 2000 to 2017.

Further reading

> Bournot S., Koechlin F., Schreyer P. (2011): 2008 Benchmark PPPs: Measurement and Uses. OECD Statistics Brief No. 17

> OECD/Eurostat (2012), Eurostat-OECD Methodological Manual on Purchasing Power Parities (2012 Edition), OECD Publishing, Paris

> The Economist (2017), The Big Mac index. January 12th 2017 edition

OECD Purchasing Power Parities (PPPs), data and methodology

The World Bank International Comparison Program (ICP)  http://icp.worldbank.org

by Rauf Gonenc and Volker Ziemann, Austria Desk, OECD Economics Department.

Digitalisation will redesign production processes and alter relationships between work and leisure, capital and labour, the rich and the poor, the skilled and the unskilled. It creates opportunities to boost inclusive growth and well-being by raising productivity, enhancing private and public services, and democratising information. However, digitalisation is inherently disruptive and raises concerns about a division of societies into winners and losers. Two questions arise for policy makers: how to ensure equality of opportunities in the race with technology and how to find the appropriate level of redistribution of the gains associated with digitalisation to preserve social cohesion.

Austria’s business sector is adapting to the global digital revolution, albeit at a slower pace than in the most advanced countries, especially among smaller firms (see Figure below). The adoption of information and communication technology applications by households is also uneven: while the young and highly educated swiftly follow global trends, older generations, individuals with lower education and immigrants lag behind. The authorities recognise the importance of helping people and firms to embrace digitalisation and have designed a “Digital Roadmap” around 12 guiding principles. Achieving the set objectives will require a transparent monitoring system with clear timelines and quantitative targets.

The ability of firm owners to fully embrace digitalisation and renew their business models should be further enhanced through awareness-raising and skills initiatives. On another front, stronger incentives, including financial ones, may be needed to encourage households to adopt e-government solutions. More generally, raising awareness for benefits arising from digitalisation and addressing potential challenges including by fostering trust and consumer protection are key ingredients for a successful and inclusive transition to the digital economy.

Many occupations may be automated in the near future. Others will see their tasks radically transformed. Researchers at the OECD and elsewhere have identified skills and tasks that are less likely to be affected and more likely to be complementary to digital technological change, notably activities requiring creative and social intelligence. Compared to the most digitised countries, such tasks seem to be less prevalent in Austria. Therefore, Austria should further develop basic digital skills and raise awareness of digital gaps. A wide-ranging education reform addresses these challenges and ought to be implemented swiftly. Finally, life-long learning solutions need to be developed further to upgrade skills of middle-aged and older workers.

Find out more:

OECD (2017), OECD Economic Surveys: Austria 2017, OECD Publishing, Paris.

by Rauf Gonenc and Volker Ziemann,  Austria Desk, OECD Economics Department

After several years of subdued growth, economic output accelerated in 2016 supported by a tax reform that entered into force in 2015-16, and more recently a pick-up in international trade. The upturn has improved fiscal balances, and the public debt ratio, though still high, is on a downward path. The improvement in the macroeconomic situation has strengthened business and household confidence and the short-term outlook is favourable.

Nonetheless, the OECD 2017 Economic Survey of Austria suggests that Austria may be adapting too slowly in a rapidly changing environment, including with respect to digitalisation. Austria’s strong position in regional value chains has suffered somewhat since 2012 amid intense competition with catching-up Eastern European countries notably in supplying traditional key partners such as Germany or Italy. On the other hand, Austria has managed to gain export market shares in countries like the United States, China, India or Japan which, together with vibrant tourism, has kept the current account in positive territory.

Austria’s labour force and employment have expanded strongly in recent years largely driven by migration from new EU member states and, especially in 2015, by refugee inflows (see Figure below). Pension reforms limiting pathways to early retirement have induced a strong increase in employment of older workers albeit from very low levels in international comparison. Labour participation of women has also improved, though mainly through part-time work reflecting prevailing gender-inequalities, which were analysed in detail in the OECD 2015 Economic Survey of Austria.

The resulting decline in average hours worked per person contributed to the decline in trend growth observed since the beginning of the 2000s, alongside the slowdown of both the capital stock and total factor productivity. While Austria shares these trends with most, if not all, other advanced OECD countries, some specific weaknesses emerge. Geographical mobility is low and the labour tax wedge remains high. OECD indicators further suggest that, despite some progress, retail and professional services are over-regulated. Enterprise churn rates are lower than in comparable countries which may be partly driven by restricted financing options. Austria has recently launched a crowd-financing initiative, but external financing of start-up and small firms remains overly reliant on bank credit and venture capital is scarce. The government’s January 2017 policy package will help reduce some of these bottlenecks provided that the political process surrounding the October 2017 snap elections does not undermine its implementation.

Find out more:

OECD (2015), OECD Economic Surveys: Austria 2015, OECD Publishing, Paris.

OECD (2017), OECD Economic Surveys: Austria 2017, OECD Publishing, Paris.