Issue Structural reform to lift total factor productivity

Summary

Because demographic change will keep pushing potential growth down, the authors argue that policy capacity should concentrate on raising total factor productivity through structural reform. Lowering entry barriers would let innovative, high-productivity firms open new markets, and improving regulations that restrict competition would sharpen incentives to raise productivity. At the level of individual workers, a system that rewards performance would motivate people to develop and use their capabilities. Easing rigid seniority-based pay, the heavy protection of regular relative to non-regular workers and working-hour regulations would allow human resources to be reallocated flexibly. The pessimistic scenario, in which reform stalls, shows the cost of inaction as contraction arrives earlier.