Governments in many OECD countries have made good progress implementing the economic reforms needed to improve living standards, according to a new report from the Organization for Economic Co-operation and Development. However, they have largely ignored labour market reforms, it found.

The OECD says its studies have found that to raise living standards through economic growth and wealth generation, it is essential to improve labour productivity and remove impediments to work.

The report released today, Going for Growth 2008, assesses the extent to which governments have followed country-specific policy recommendations to boost growth published in last year’s report. It finds that during 2007 governments took action in almost two-thirds of the priority areas identified.

More reforms were undertaken to improve productivity than to reduce obstacles to work, it observed. Competition-restraining regulations in the energy sector, for instance, have been eased in a number of countries. Also, public sector efficiency has been improved where weaknesses were identified. But in labour markets, there has been little attempt to reform job protection laws in countries where they are regarded as too rigid.

“Overall, substantial progress has been achieved in the areas of product market deregulation, education reforms and taxation,” said Angel Gurría, Secretary-General of the OECD. But he added, “Reforms of labour market policies have been much less impressive.”

Presenting the report, Gurría said more progress could have been achieved given the relatively strong economic performance of most OECD countries over the past year. Short-term adjustment costs of reform are easier to absorb during cyclical upturns, he said, but added, “Experience shows that good economic conditions may in fact slow down reforms as they temporarily mask underlying weaknesses. That is one of the cruel paradoxes of the political economy of reform.”

Other key findings of the report:

  • geographic factors still limit trade and influence living standards;
  • if OECD countries were to align each of their competition-restraining rules with the least restrictive stance in the OECD area, the resulting increase in trade in services could give a significant boost to per capita GDP;
  • efficiency in primary and secondary schools in OECD countries could be enhanced by a large margin if they were to adopt best practices; and
  • raising the number of people graduating from university could be achieved by offering different funding options to encourage students to invest in higher education, by increasing tuition fees to provide education establishments with more resources, and by providing greater scope for innovation by the educational institutions themselves.