The after-effects of the COVID-19 pandemic and the impacts of Russia’s war of aggression against Ukraine are an opportunity for governments to undertake the structural policy reforms necessary for strong and sustainable growth and more competitive, innovative and resilient economies in the medium and long term, according to the OECD’s Going for Growth 2023.

Unprecedented policy responses to recent shocks have helped protect lives and livelihoods during this turmoil, but long-term and long-standing challenges remain to be addressed.

Weak productivity growth and declining business dynamism remain prevalent in many OECD countries. Structural problems in labour markets still prevail and skill mismatches continue to hinder effective resource utilisation. Moreover, while its urgency is widely recognised, environmental sustainability has often remained absent from most growth strategies.

The Going for Growth policy report analyses the structural reform priorities that can help economies bounce back from the shocks and offers policy makers country-specific advice to create the conditions for a decisive transition.

“To secure stronger sustainable growth, lifting incomes and living standards and generally boost opportunities, policymakers need to focus on both a well calibrated response to the immediate pressures as well as tackling the longer-term structural reform challenges,” OECD Secretary-General Mathias Cormann said launching the report in Brussels today.

“Reform priorities vary between countries, but everyone will gain from increasing workforce participation levels of women and older workers, boosting competition, enabling a more efficient reallocation of labour and capital to more productive firms and increasing incentives to innovate and secure the necessary energy transition.”

Going for Growth 2023 provides a framework for overarching policy reform around four key pillars.

First, it suggests countries enhance the design of fiscal support programmes. At present, the lowest-income 20% of the working-age population receive 24% of cash transfers, on average across OECD countries, only slightly more than the highest-income 20% who receive 20% of cash transfers. This is a clear indication of the need for better targeting of fiscal support. Measures can also be taken to raise the efficiency of social protection systems, limiting the long-run impact on public finances.

Second, steering growth in a more durable, resilient, and inclusive direction requires structural policy action to increase labour force participation, particularly of women.

Women’s employment rate still lags that of men by 10 percentage points across the OECD, while gender pay gaps remain prominent across many OECD countries. Gender gaps in labour market participation are often linked to barriers or incentives related to the provision of childcare and parental leave, as well as the structure of tax-benefit systems. Increasing access to, and lowering the cost of, non-parental childcare should be a key policy priority, alongside efforts to improve the matching between jobs and workers.

Third, it recommends new policy reforms to ensure digital transformation leads to productivity enhancement. Enabling firms and workers to reap the full benefits of digitalisation requires improvements across multiple policy areas, with a particular focus on facilitating investments in, and access to, broadband connections, as well as strengthening firms’ incentives and capabilities to acquire digital technologies and make the most of these investments.

Rapid progress in artificial intelligence also brings new challenges for governments and societies, requiring cooperation across stakeholders and policy makers – both within and across countries – to ensure that these powerful tools are used for the benefits of all citizens, including workers.

Fourth, it urges governments to make faster progress towards decarbonisation to attain climate change targets. New action should span both incentives-based policies as well as regulatory measures, to ensure full and comprehensive effectiveness. Improvement is particularly needed as concerns carbon pricing, which has an important role to play, alongside policies to increase public and green investment, and to strengthen regulations, institutions, and standards to reduce emissions.

These four pillars are reinforcing. Coherent climate and investment policies and effective structural reforms can work together to facilitate the transition and promote growth while protecting the most vulnerable. Early planning for the transition is essential to avoid stranded assets in carbon-intensive industries and stranded people and communities alongside them.

A special focus in this year’s edition of Going for Growth assesses the political headwinds around trade policy, which threaten to unwind some of the benefits from international trade over recent decades.

Globalisation has brought many benefits through higher productivity, lower prices, greater choice, and greater prosperity for billions of people, especially in emerging-market economies.

The report notes that the national security and strategic considerations that have gained traction in the trade sphere create risks that could fragment the rules-based multilateral trading system. Policies can and should play a role in reducing those risks without eroding efficiency gains from global trade.