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Federal Government urged to eliminate early retirement and divorce schemes by OECD

Recommendation by OECD: Abolish early retirement and spousal benefit splitting to German administration

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Secretariat Head of OECD Discloses Findings in Recent Report
Secretariat Head of OECD Discloses Findings in Recent Report

OECD Urges Federal Government to Combat Workforce Issues: Skills Gap, Early Retirement, and Joint Taxation

Federal government urged to end early retirement and income-sharing based on marital status, as per advice from the OECD. - Federal Government urged to eliminate early retirement and divorce schemes by OECD

Germany's workforce challenges, including skills shortages, early retirement, and joint taxation's impact on labor market participation, particularly for women and older workers, are at the center of OECD's latest suggestions for the country.

Tackling Skills Gaps

To stimulate workforce participation, the OECD encourages enhancements in work incentives for women, older workers, and low-income individuals. This may include incentives for a transition from part-time to full-time employment, such as wage premiums or exemptions for additional income from extra-hours work [1][2].

The OECD also proposes reducing barriers to skilled migration and better integrating migrants already in the country to address workforce shortages [2][3]. Improvements in education and training policies are crucial to ensure a well-prepared workforce [2].

Promoting Later Retirement

Policies that encourage early retirement contribute to workforce gaps, claims the OECD. It advocates for reform to encourage longer working lives, including revising pension and retirement incentives [5]. Additionally, addressing the financial pressures posed by an aging population requires reforms to pension, health, and long-term care systems to sustainably employ older workers [4].

Reforming Joint Income Taxation

The OECD recommends reforming joint income taxation for couples, reducing marginal effective income tax rates for second earners (often women), encouraging increased labor market participation and reducing disincentives for full-time or additional work [2][5]. It also suggests limiting mini-jobs (low-wage, part-time positions) to students, reducing incentives for women to remain underemployed and motivating more significant labor market engagement [2].

Wider Labor Market and Fiscal Reforms

Simplifying administrative processes and regulatory barriers to market competition, fostering regional development, and raising spending efficiency are essential for improving business dynamism, attracting skilled labor, and ensuring medium-term fiscal sustainability [4].

Key Points

OECD's recommendations address three main issues:

  1. Skills Shortage: Improve work incentives, reduce migration barriers, integrate migrants, and enhance education/training.
  2. Early Retirement: Discourage early retirement, reform pensions and care systems.
  3. Joint Taxation: Reform joint income taxation and restrict mini-jobs for students.

These suggestions are part of a broader agenda focusing on administrative simplification, regional development coordination, and spending efficiency.

  1. The OECD encourages Germany to improve work incentives for various demographics, such as women, older workers, and low-income individuals, through measures like wage premiums and exemptions, to stimulate workforce participation.
  2. To address workforce shortages, the OECD proposes reducing barriers to skilled migration, better integrating migrants already in the country, and improving education and training policies.
  3. The OECD suggests reforming joint income taxation for couples to reduce marginal effective income tax rates for second earners and limit mini-jobs to students, aiming to encourage increased labor market participation and reduce disincentives for full-time or additional work.

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