"Germany's current economic success offers a good platform for achieving sustainable and inclusive growth, but further reforms will be necessary over the medium and long term," the OECD wrote in a new report.
Germany has more jobs, but more inequality
13 May 2014
Germany must do more to reduce poverty risks made worse by reforms to the labour market that have reduced joblessness but widened inequality, the Organization for Economic Cooperation and Development said on Tuesday.
Presenting the report at a news conference, OECD secretary general Angel Gurria said that reforms were usually enacted in times of crisis when there was no other option.
"However, reform processes should continue in good times. For Germany, this means that the country should act now to embark on a more inclusive and resilient growth path," Gurria said.
"Among the priorities are making the tax system more socially just and environment-friendly, strengthening the financial sector, so that it is better able to absorb future risks, increasing the contribution of the service sector and creating greater equality of opportunity in the education system and in the labour market," the report said.
Reforms over the past decade had enabled Germany to boost job creation and drive unemployment to one of the lowest rates in the OECD area.
However, problems arose from the rapid growth of the low-wage sector and the large number of temporary workers.
"The sharp drop in unemployment has not reduced inequality or the risk of poverty. Upward mobility of low earners has in fact fallen in recent years," the OECD report said.
Labour market split
The organisation urged Germany to take steps to "heal the split in the labour market" between employees with permanent contracts who have better protection against dismissal and often better salaries and those with temporary contracts, with little protection and lower pay.
A universal minimum wage - which is being phased in from next year - could aid that effort, as could harmonization of the rules governing employment protection, the OECD said.
The OECD also called on Germany to combat long-term unemployment.
"New, higher-quality jobs and better access to the labour market are not only needed to ensure fairness, but are also an economic necessity given ageing of the German population and projected impacts on growth potential and long-term gross domestic product (GDP)," the report said.
"A slow-growth future will make it harder for Germany to fund public services, notably health care, which are likely to be in greater demand in the future," it said.