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FINLANDFIT FOR THE FUTURE

FEBRUARY 2013

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This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

***

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

FINLAND

FIT FOR THE FUTURE

1

INTRODUCTION Among OECD member countries Finland stands out as an innovative economy, with a highly skilled workforce and a highly admired education system.

However, the Finnish economy was hit hard by the global economic crisis. Activity has yet to fully recover from the sharp 2008-09 recession. Between 2008 and 2011, productivity growth slowed and unit labour costs rose faster than in many other euro area countries. These are challenges that need to be addressed.

To achieve long-term sustainable growth and preserve the country’s comprehensive welfare state arrangements in the face of demographic ageing, Finland has to implement forcefully a series of structural reforms as presented in this brochure.

First and foremost, Finland must boost productivity growth in most sectors, particularly retail trade and network industries, but also in the public sector. Finland also needs to improve outcomes in innovation and entrepreneurship, and invest further in skills and R&D.

Second, Finland needs to better harness its remarkable human resources. This requires enhanced active labour market policies, improved work incentives for older workers and second earners, and targeted investments in skills and education for youth. Such a strategy could be even more successful if accompanied by lowering the tax wedge on labour.

A third important challenge for Finland is to address growing inequalities in access to health care and health conditions across regions and socio-economic groups. Primary care, which is mostly provided by municipal health centers, needs to be strengthened, and therefore considered as part of the current territorial reforms that aim to merge municipalities and achieve economies of scale.

The OECD stands ready to be a partner in the formulation and implementation of an agenda for inclusive growth and competitiveness in Finland – and to advance “better policies for better lives.”

Angel Gurría OECD Secretary-General

2

PROMOTING GROWTH, PRODUCTIVITY AND COMPETITIVENESS

Finland’s GDP per capita gap vis-à-vis leading OECD economies fell somewhat during the financial crisis. This reflected a sharp fall in labour productivity and a slight decline in employment (see Figure 15 in annex). Raising productivity and labour force participation are therefore required to boost growth.

For countries sharing the same currency, relative growth of labour compensation and labour productivity should converge. Since 2000, Finland’s unit labour costs have been on a strong upward trend compared to major European competitors.

F I G U R E 1. UN I T L A B O U R C O S T S (2000 = 100)

Source: OECD Economic Outlook 92 database.

Demand from trading partners has been subdued in recent years, especially for capital goods, which account for an important share of Finland’s exports. Non-price factors (i.e. innovation and design cycles in the ICT industry) together with the relatively rapid rise in unit labour costs have weakened Finland’s export performance.

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100.0

110.0

120.0

130.0

140.0

150.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Austria

Belgium

Finland

France

Germany

Ireland

Italy

Netherlands

Spain

3

F I G U R E 2. E X P O R T P E R F O R M A N C E C U M U L A T E D C H A N G E I N M A R K E T S H A R E , P E R C E N T A G E P O I N T S , 2000-11

Source: Economic Outlook 91 (May 2012) Database.

PRODUCTIVITY IN FINLAND

Labour productivity grew rapidly between 1990 and 2008, at an annual rate of 2.8%, significantly shrinking the productivity gap relative to the best-performing OECD countries. It was boosted by a cyclical expansion in the wake of the deep recession in the 1990s, significant structural reforms and an excelling information and communication technology (ICT) sector.

The 2008-09 recession halted productivity convergence. While labour productivity fell by almost 4% from its peak in the OECD area, the decline was more than twice as large in Finland. This weakening performance can, to a large extent, be explained by a sharp fall in value added per employee in the ICT sector, that roughly coincided with the downturn. Productivity growth has now resumed, but the level of labour productivity remains about 7% below the pre-recession trend. Boosting productivity is therefore a central challenge for the Finnish economy.

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F I G U R E 3. L A B O U R P R O D U C T I V I T Y A N D E X P O R T S A R E W E A K

1. Real GDP divided by total employment. 2. Of goods and services.

Source: OECD Economic Outlook database.

Raising productivity by boosting entrepreneurship, innovation and R&D

Total factor productivity (TFP) is a key driver of growth in most OECD countries and especially in Finland. Innovation, entrepreneurship and R&D are crucial factors behind TFP growth. The supply of new ideas, entrepreneurship, access to capital and incentives for innovation are particularly critical. Improving outcomes in these areas would thus help sustain growth going forward and would actually also contribute to improve labour productivity.

Finland’s investment in R&D is among the highest in the OECD (Figure 4). High private and public R&D spending brought the total close to 4% of GDP in 2010, and the supply of researchers is high. Still the output is less impressive, with the quality of universities being good but not extraordinary, while firms’ output in terms of innovation is mediocre.

Conditions for start-ups are broadly favourable in Finland, as indicated by relatively high rates of firm creation, which are above those in neighbouring Nordic countries but on a par with the OECD average. However, the contribution of new firms to productivity growth is limited, as new entrants tend to have substantially lower productivity compared to incumbents and often fail to grow rapidly.

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F I G U R E 4. R&D I N OEC D A N D N O N -OECD C O U N T R I E S, 2009

Source: OECD, STI Scoreboard 2011, based on Main Science and Technology Indicators Database, June 2011.

POLI CY RECOMMEN D ATIONS

• Maintain a strong government support in basic R&D and education. • Improve academic performance by distributing research grants according to

performance. • Create incentives for competition, specialisation and scale economies in university

research. • Scale back business subsidies and streamline business supporting institutions. • Consider whether a R&D tax credit would be a more efficient instrument for

supporting private sector R&D. • Streamline direct government support for small firms, as well as institutions with

overlapping responsibilities, or overlapping with private markets. • Focus government support for R&D, entrepreneurship and start-ups on addressing

externalities in terms of education, R&D spillovers and creating highly productive jobs. • Align capital taxation across organisational forms.

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Gross domestic expenditures on R&D as a percentage of GDP

BRIICS North America EU27 Other OECD members

R&D Volumes in 2000 USD - constant prices and PPP

1 Billion

10 Billion 100 Billion

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Raising Productivity in the service sector

In international comparison, productivity is particularly low in services, both public and private. Stronger competition, especially in internationally less exposed service sectors like retail trade and public services, could boost productivity and growth.

F I G U R E 5. PR O D U C T I V I T Y ¹ I N T R A D E A N D P U B L I C S E R V I C E S

1. Gross value added per hour. 2. Wholesale and retail trade, transport, accommodation and food service activities. 3. Public administration, defence, education, human health and social work activities. Source: Eurostat.

Public Services

Productivity in the provision of public services has declined by more than 10% since 2000. Even though measuring productivity in non-market services is difficult, current trends point to a deterioration in efficiency which, if not reversed, could threaten fiscal sustainability and the ability to continue providing high quality public services. The main obstacle to higher efficiency is the fragmentation of municipal services, as municipalities are often small, which prevents them from achieving economies of scale and benefiting from competition in provision, but also reduces their ability to hire qualified personnel.

POLI CY RECOMMEN D ATION S

• Pursue further municipal mergers to increase efficiency and achieve economies of scale in basic service provision.

• Advance benchmarking to enhance municipal-level productivity.

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F I G U R E 6. PR O D U C T I V I T Y A N D E F F I C I E N C Y

1. Value added per hour. 2. Based on life expectancy and amenable mortality which have been calculated using, respectively 2007

and 2003 data.

Source: Statistics Finland, Statistics on Local Government Productivity 2009; OECD (2010), Health Care Systems: Efficiency and Policy Settings, OECD Publishing, Paris.

Network industries and retail trade

Network industry regulations are tight. Despite recent progress in fostering competition in network industries, improvements have been slower than in other OECD countries, largely reflecting a high share of public ownership in the transport and utilities sectors. Allowing more competition in these sectors could lead to significant productivity gains.

Despite recent deregulation, regulatory barriers in the Finnish retail sector are among the most restrictive in the European Union. Zoning and planning restrictions hamper retail development, as new firms are often dependent on using new rather than existing locations. As in the other Nordic countries, market concentration is high and merger control has been tightened only recently through the 2011 Competition Act.

POLI CY RECOMMEN D ATION S

• Follow up the 2011 Competition Act by ensuring that the competition authority has sufficient resources to fulfil its extended mandate.

• Pursue more structural reforms within network industries.

• Consider private provision in certain sectors, e.g. in health, in order to increase productivity and provide stronger incentives for private sector R&D in those sectors.

• Loosen zoning and planning restrictions on retail development to encourage competition and to increase store-level scale economies.

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F I G U R E 7. S E C T O R A L R E G U L A T I O N I N R E T A I L S E R V I C E S RE T A I L S E C T O R, IN D E X S C A L E O F 0-6 F R O M L E A S T T O M O S T R E S T R I C T I V E

Note: Users of the data must be aware that they may no longer fully reflect the current situation in fast

reforming countries. Source: OECD (2011), Product Market Regulation Database.

RAISING LABOUR FORCE PARTICIPATION

Alongside increasing productivity, raising labour force participation is a second lever for stimulating growth. This is of particular importance in an ageing society like Finland.

The Finnish labour market was strongly hit by the global economic crisis. The unemployment rate rose from 6.5% of the labour force in December 2007 to 8.5% in 2010, when it peaked. Although the unemployment rate has edged down since, at 8%, it remains well above the pre-crisis level.

Long-term unemployment rose significantly after the 2008-09 recession, but has started to come down recently. It now stands at 21.6% of total unemployment, which is roughly half of the EU average and in line with the average for neighboring Nordic countries.

While employment rates in Finland are fairly high and unemployment is moderate compared to many other OECD countries, rigidities in the labour market are hampering the smooth reallocation of the workforce from less to more productive sectors. In addition, insufficient activation of unemployed workers and high unemployment benefits are holding back employment. The duration of Finland’s unemployment insurance benefits is long relative to other OECD countries (550 days or nearly 2 years).

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Index 2008 2003

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F I G U R E 8. EM P L O Y M E N T R A T E RA T I O O F E M P L O Y M E N T TO W O R K I N G A G E P O P U L A T I O N , 2011

Source: Economic Outlook Database

POLI CY RECOMMEN D ATIONS

• Continue to adjust active labour market policies so that activation takes place earlier.

• Improve work incentives by lowering high replacement rates in the unemployment insurance and related benefit systems.

• Adjust the temporary lay-off scheme so that the employer bears some of the costs of the programme.

• Improve work incentives for groups with preferences for part-time work, such as second-earners in families with small children.

Young Finns face increasing difficulties to enter the labour market. In November 2012, the unemployment rate for the population aged 15-24 in Finland was 19%, 2.8 percentage points higher than the level before the crisis (December 2007) and 2.8 percentage points above the OECD average.

The Finnish government is currently rolling out a comprehensive program targeted at youth, the so-called Social Guarantee. This program aims to offer all under-25s and all newly-educated under-30s a job, study place, apprenticeship or rehabilitation within three months of the young person becoming unemployed. All the schemes will last until 2015.

While this measure goes in the right direction, there may be a risk of some wasteful expenditure occurring in devoting resources to some youth who would be able to find employment in any case without any additional public support.

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F I G U R E 9 - YO U T H U N E M P L O Y M E N T R A T E (2012-Q 3)

Source: OECD Short-Term Labour Market Statistics dataset.

FI G U R E 10. EM P L O Y M E N T R A T E S ( 65-69), 2001 A N D 2011, % O F P O P U L A T I O N A G E D 65-69

Source: National Labour Force Surveys.

There is room for Finland to do more to encourage work at an older age and in particular beyond 65. In 2011, the employment rate for the population aged 60-64 in Finland (41.6%) was slightly above the OECD average (40.0%) but, at 11.8% for the population aged 65-69, it was well below the OECD average of 22.8%.

POLI CY RECOMMEN D ATIONS

• Raise the statutory retirement age of 65 and index it to increases in longevity.

• Close subsidised pathways to early retirement (including the tightening of access to disability benefits).

• Tackle barriers against the employment of older workers, for example by increasing pension accrual rates after 65 and extending the actuarial adjustment of pensions to the full working life, including the period after the minimum retirement age.

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Reduce the labour tax wedge to improve labour participation and the efficiency of the tax structure

In several respects, the Finnish tax system is relatively efficient and well adapted to the country’s needs. However, taxes on labour are somewhat higher than the OECD average, though they have come down since the 1990s. High taxes on labour are likely to adversely affect incentives for working longer hours and investing further in education, even if hours worked per employee and returns on education in Finland are well above the other Nordic countries. In spite of substantial income tax changes in the past years, marginal tax wedges on labour income remain high, hampering incentives in labour utilisation.

Value-added tax (VAT) rates will be increased by 1 percentage point in 2013, some exemptions have been removed and excise duties on some goods have increased. Taxes on transport fuels and the annual vehicle tax have been raised, while the car tax scale has been adjusted to reinforce measures to diminish environmental damage.

F I G U R E 11. MA R G I N A L T A X W E D G E O N L A B O U R, A T A V E R A G E W O R K E R E A R N I N G S, S I N G L E P E R S O N

W I T H O U T C H I L D R E N - PE R C E N T A G E O F T O T A L L A B O U R C O M P E N S A T I O N

%

Source: OECD (2012), Taxing Wages Database

POLI CY RECOMMEN D ATION S

• Lower labour taxation further while offsetting the revenue loss with higher indirect – including green – taxes. Increase property tax rates while aligning the assessment values with market valuations. Raise the revenue efficiency of the VAT by eliminating reduced rates.

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PROMOTING SOCIAL COHESION INCOME INEQUALITIES HAVE BEEN ON THE RISE

Finland is a cohesive and equitable society with a relatively large welfare state - public social spending amounts to 29% of GDP (the OECD average is 22%). Finland’s population is ageing rapidly: the number of people of working age per senior citizen is expected to fall from 3.7 in 2010 to 2 in 2050. Gender and other equity objectives play an important role. There is a strong local government tradition, and a high degree of trust in its ability to deliver social services. This contributes to the population’s willingness to accept a high tax burden.

Finland is also one of the most equal countries in the OECD, in terms of income distribution. Based on the Gini index, inequality in Finland in 2010 was 0.26, well below the 0.31 OECD average. Similarly, Finland’s population faces one of the lowest risks of relative poverty. 7% of Finns live in households with income below half the median income, in contrast with the OECD average of 11%.

F I G U R E 12. TR E N D S I N I N E Q U A L I T Y O F D I S P O S A B L E I N C O M E (G I N I C O E F F I C I E N T)

Source: OECD 2011, Divided we Stand and OECD income distribution database. Note: Income refers to disposable income adjusted for household size.

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1975 1980 1985 1990 1995 2000 2005 2010

Trends in inequality of disposable income (Gini coefficient) USA

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Finland

OECD

Denmark

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Even so, inequality and poverty have increased markedly since the 1990s, as in other OECD countries, including in neighbouring Scandinavian countries. Similarly, in the same period the difference between the Finnish and the average OECD risk of poverty fell from almost 60% to below 34%.

The upward trend in inequality and poverty was in large part driven by the reduction in the ability of the tax and benefit system to redistribute income. In fact, inequality and relative poverty, before taking into account income taxes and cash transfers, has hardly changed since the 1990s. Meanwhile, the redistributive effect of taxes and transfers has fallen by 16% and the poverty reduction effect by 12%.

It should also be noted that one driving factor of higher inequality has been the surge in top incomes: while at the beginning of the 1990s, the richest 1% of income earners received about 5% of all income, this share had almost doubled to 9% by 2008 before falling slightly in 2009 as a result of the financial and economic crisis.

Other factors explaining the rise in inequality relate to family policies. The Finnish family policy model provides ample support to parents with young children; through paid parental-leave, home care leave periods (3 years if taken together) and subsidised pre-school until children go to primary school at age 7. The current policy aims to create an environment in which parents can realistically plan combining their care and full-time employment commitments. This contributes to a relatively high total fertility rate of almost 2 children per woman, and a female employment rate of 67.5% in 2011 (11 percentage points above the OECD average, while the incidence of part-time employment is below the OECD average at 13% vs 17%). However, at 20% the gender pay gap is above the OECD average (16%), and the OECD Gender Initiative showed that periods of leave beyond two years reduce female employment and increase the gender pay gap.

Reduced family spending after the crisis in the early 1990s involved cuts in leave payment rates and out-of-school-hours care capacity. This may support female labour supply, which is much needed in view of population ageing, and further reduce gender inequalities in the labour market.

POLI CY RECOMMEN D ATION S

• Recover the ability of the tax and transfer system to reduce inequality.

• Sustain childcare and after school hours care capacity and where possible extend it.

• Seek higher efficiency in family spending through a reduction in the duration of home care leave.

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UNEQUAL HEALTH OUTCOMES AND VARIABLE QUALITY OF CARE

Even though life expectancy in Finland is about average for the OECD, in some areas the Finnish health system falls well behind its peers on equality and efficiency. Health inequalities are large across socio-economic groups and regions, and efficiency in health services has not increased as rapidly as it could. The most educated Finnish people at the age of 30 can expect to live 6 years longer than the least educated. This is a larger gap than in Sweden and the Netherlands, where it is around 3-4 years, and is only behind the performance of the United States, where the gap is 7 years.

High inequalities in health are caused in part by lifestyle factors. The percentage of adult smokers in Finland is below the OECD average and declining. The obesity rate among adults is also slightly below the OECD average. However, obesity rates are increasing; adult alcohol consumption is above average and Finland is one of the few countries where it is still rising. Smoking and drunkenness among 15-year olds and overweight and obesity rates among 11-15-year olds, are all high by OECD standards.

In addition to lifestyle factors, inequalities in health outcomes are partly due to inequalities in access to services, particularly primary care. In a comparison of 15 OECD countries, only Estonia and the United States showed greater inequality than Finland in access to doctors.

Unequal access to care is a particular problem for primary care, which is provided by municipal health centers, but also by occupational or private sector providers. Larger companies often provide access to general practicioners free of charge, which leaves the hosting municipal health centers with a high workload. However, some people are put off from using these health centers because of a perception that they will need to wait for an appointment, and may not get the same quality of service that they might get in the occupational or (paying) private health system. This is particularly a problem for mental health services.

Providing quality health care can prove challenging for small municipalities, especially in sparsely populated areas where they are often struggling to recruit qualified personnel and cannot benefit from economies of scale. Small municipalities often lack the expertise needed to organise, plan or purchase health services efficiently. The bargaining power of municipalities in dealing with large providers is often limited. Risk pooling also is very limited, exposing small municipalities to catastrophic costs. A risk-equalisation scheme is used to ensure national equity in financing. However, such schemes are always imperfect as finding the adequate risk-adjustment formula is very difficult.

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F I G U R E 13. IN E Q U A L I T I E S I N S E L F -R A T E D H E A L T H B Y I N C O M E L E V E L

Source: OECD Health Data 2012.

At the moment, Finland also relies too much on hospitals, and on specialists, whereas more outpatient general care is likely to offer better value for money as Finnish society ages and chronic diseases become more prevalent.

As in other Nordic countries, long-term care (LTC) for frail elderly is primarily arranged and financed by municipalities. In addition, the Social Insurance Institution grants need-based Care Allowances to pensioners with reduced functional capacity. The depth and breadth of LTC coverage is large, with comparatively low user cost-sharing. Two thirds of care recipients receive care in their homes. The share of over 80 year-olds, less than 5% in 2010, will reach 12% by 2050. Public spending on LTC (2.2% of GDP) is above the OECD average (1.4%), and is projected to at least double by 2050.

Over the past few years, Finland has sought to improve care quality and efficiency in LTC in three important ways. It has first increased competition across providers of care services through publicly-funded vouchers that can be used to pay for the services produced by competing providers certified by the municipality. It has also encouraged productivity improvements through the use of remote technologies, assistive devices, and voice systems to link care users to their caregivers in nursing homes. Finally, it has developed reporting quality indicators on care effectiveness and safety and strengthened the use of standardised care-need assessment instruments in care homes in order to measure care needs and generate indicators of quality of care.

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POLI CY RECOMMEN D ATION S

• Apart from higher taxes on products harmful to health, consider other cost-effective measures, such as disseminating targeted information on health risks and benefits from healthy diets, including through mass media, together with targeted tests for cardiovascular diseases.

• Continue the planned reforms to restructure municipalities, as they can be expected to result in improved efficiency and quality of care.

• Consolidate care into fewer and larger organisations, an opportunity to review the balance between hospital-based specialist care and care by generalists.

• Make greater use of clinical guidelines, and pay providers that follow them, particularly in areas where care is relatively weak, including mental health and some chronic diseases, such as diabetes.

• Monitor the implementation of ongoing reforms regarding Long Term Care.

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PUBLIC SECTOR REFORM TO MEET PEOPLE’S NEEDS AND REGIONAL POLICY CHALLENGES

IMPROVING THE EFFICIENCY OF WELFARE SERVICES

With its ageing population, Finland needs to improve the efficiency of its welfare service delivery to maintain existing levels of service. Digital welfare technologies can help increase innovation and labour productivity. Digital welfare technologies aim to digitise the front-end service delivery and rethink interactions with citizens. For example, telemedicine allows patients to self-monitor online, reducing headcount costs while improving service and flexibility.

This also offers an opportunity to develop welfare services and industries, building on Finland’s strong science base, high technological advantage and readiness and its growing need for services to an ageing population. In Finland, average labour productivity in market services was roughly 75% of that in manufacturing, while it was 115% in the average OECD country. Leveraging new technologies to create new service models could help to address low productivity in a growing segment of the service market and generate new sources of growth.

IMPROVING PRODUCTIVITY IN THE FINNISH PUBLIC SERVICE

Finland’s Central Government Productivity Programme 2005–2015 sought to achieve public sector efficiency gains by permanently reducing government staff numbers and improving labour competitiveness, curbing expenditure growth and increasing the potential to re-allocate resources. However, without innovative practices to support increased productivity, staff reductions force the remaining staff to do the same amount of work with fewer resources, which may have contributed to lower productivity in the sector in the end.

As part of workforce planning efforts, any productivity/efficiency programme should link staff reductions with efforts to examine the capacity needs associated with work intensification, and create the environment for innovation. Countries need to assess the impact of performance management mechanisms on productivity, and to identify opportunities to improve these arrangements. Particular attention should be paid to the impact on the morale of public servants, on retention of key staff and on changing management aspects in support of reform efforts.

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Strengthening the capacities and accountability of the senior civil service

Finland, like most OECD countries, has a distinct group of senior civil servants that is recruited and managed by separate HRM practices from the majority of the civil service. Finland is near the OECD average in terms of the use of separate HRM practices for senior managers but a strategic approach to HRM is still elusive.

F I G U R E 14. UT I L I S T A T I O N O F S T R A T E G I C HRM P R A C T I C E S

Source: OECD (2011), Government at a Glance 2011, OECD Publishing

Previous OECD work has identified several common elements in recent reforms in the management of the senior civil service. For example, some reforms have focused on the quality of senior management to strengthen performance and attract the best talent. Reforms of the recruitment and selection of senior managers have introduced more transparency and an emphasis on competencies, and many countries have taken steps to introduce more competition for senior management positions.

Although Finland currently has a general accountability framework in place for managers, this framework still lacks clear objectives and only covers a narrow range of issues. Canada, for example, has developed a Management Accountability Framework to clarify management expectations of deputy heads, support ongoing dialogue on management priorities and to hold senior management accountable for its handling and implementation of reforms.

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

1

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Composite index OECD31

19

TERRITORIAL REFORM

Finland is one of the most decentralised countries in the OECD. Sub-central governments represent 40% of public spending and 30% of public revenues, well above the OECD average of 26% and 16%, respectively. Demographic factors (ageing population and migration of younger people from the North and East to urban centres) are challenging the capacity of Finland’s central and sub-central governments to deliver high-quality public services.

In Finland, territorial reforms aiming to merge municipalities and reach economies of scale have been high on the political agenda for years. The present government seems to be particularly committed to reach these objectives. In 2007, Finland started restructuring local government and services (the “PARAS reform”). This reform aimed to encourage municipal mergers and municipal cooperation for public service delivery on a voluntary basis. By late 2009, the number of municipalities had declined by 67, bringing the total number down from 415 to 348. Fourteen additional mergers were expected before the end of 2012.

Through ambitious territorial restructuring Finland would benefit from significant economies of scale and an increase in the productivity of the public sector. Both would improve public service provision and help reign in public expenditures.

POLI CY RECOMMEN D ATION S

• Develop the use of digital welfare technologies to increase innovation and labour productivity, and leverage these technologies to create new service models.

• Assess the impact of performance management arrangements on productivity, and identify opportunities to improve these arrangements, paying particular attention to the impact on public servants’ morale and on retention of key staff.

• Reform the recruitment and selection of senior managers to introduce more transparency and to emphasise competencies, and introduce more competition for senior management positions.

• Introduce fixed-term mandates for top managers in order to support greater performance orientation and provide more flexibility in staffing senior positions.

• Continue the ambitious territorial restructuring to increase the productivity of the public sector.

20

SELECTED FIGURES F I G U R E 15. D I F F E R E N C E S I N G DP P E R C A P I T A L E V E L S

Percentage differences vis-à vis the OECD average, in current prices and current PPPs

Source: OECD Productivity database, end of September 2012

21

F I G U R E 16. G R O W T H I N P R O D U C T I V I T Y (G DP P E R H O U R W O R K E D) TO T A L E C O N O M Y , P E R C E N T A G E C H A N G E A T A N N U A L R A T E

Source: OECD Compendium of Productivity 2012, Indicators.

-10

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