Wage inequality is also rising. In 18 of the 20 OECD countries where data exist, the gap between top earners and those at the bottom has risen since the early 1990s. Ireland and Spain are the only exceptions to this trend (see graph).
The OECD report makes a number of recommendations on policies governments should put in place to create more and better jobs.
In countries where social security contributions are high, such as Belgium, France and Sweden, the OECD suggests moving to broader sources of financing public social protection. Social contributions are largely based on wages and act as a tax on labour, limiting job creation. Given the falling share of wages in national income, it is key to reduce the role of social contributions and increase that of broader tax bases, such as income taxes and/or VAT, to fund social protection.
Globalisation requires mobility to ensure that workers are not trapped in jobs with no future. The report praises the so-called “flexicurity” approach adopted in Austria and Denmark to address this. In Austria, for example, workers have individual savings accounts, instead of traditional severance pay schemes, that move with them as they move jobs. If they lose their job, they can choose to withdraw funds from the account or save the entitlements built up towards a future pension.
Job losers should be compensated through social protection systems which are employment-friendly, the report notes. This can be done by providing adequate benefits hand-in-hand with “activation” policies which increase re-employment opportunities. Experience of Nordic countries and Australia shows that such policies, if well-designed, improve the job prospects of laid-off workers, thereby easing their fears about globalisation.
