The U.S. still leads the world in
innovation, but it could lose its edge unless it puts more into
educating its workers and heads off growing income inequality, an
international economic organization warned Tuesday.
The Organization for Economic Co-operation and Development (OECD) - a group of 34 industrialized countries that grew out of the Marshall Plan after World War II -- took a close look at the US economy and found that monetary policy was on the right track and job creation has improved.
"But there are signs that we're not pushing the frontier anymore," said Richard Boucher, OECD deputy secretary general, at the report's release in Washington.
One of the most alarming trends is a growing "intergenerational immobility" resulting from the gap between rich and poor.
"If your parents were poor, you're going to stay poor," Boucher said. "The chance of staying poor (in the US) is higher than in many countries in Europe."
The OECD hammered home that the chief solution to both income inequality and lagging innovation is education, with focus on a German-style vocational training programme. The efforts should focus on secondary school students in the fields of science, technology, engineering and maths. Currently, US students entering university are by and large not equipped to handle such technical subjects, the report found.
Boucher said the "scariest" finding of the report was the stagnation of US tertiary schooling rates. The US is one of only five countries in OECD where the percentage of those with post-high-school training -- about 45 percent -- has not increased in the 25-34-year-old group compared to the current 55-64-year-old group.
"In the future years all these young sharp kids will be our competition," he said, pointing to the other 29 countries.
Wendy Dunn, one of the report's authors, told dpa that "not everyone has to go to college to get a decent job." Instead, the report highlighted Germany's vocational training system as a model, because it offers more hands-on work and actual job experience in addition to classroom preparation.
But Dunn also said that OECD was not recommending converting to a German education system, which separates children into vocational and university tracks quite early on.
"The United States is hesitant to force tracking at a very early age," Dunn said.
While the report's authors found that the US was on the way to recovery from the 2007-09 recession, it warned that the country was facing endemic unemployment that could become "structural" without dynamic reform of education and training systems and more emphasis on re-employment services.
The OECD projected that unemployment would remain at 8 per cent through 2012 and fall only to 7.6 per cent in 2013. For the first time since the Great Depression, US unemployment has been above 8 per cent for more than two years.
On the issue of income equality, the OECD noted that taxes have remained constant for the US middle class, but have fallen drastically for the wealthy, especially the top 1 percent earners.
The United States ranks fourth from the bottom for income equality among members, with only Turkey, Mexico and Chile ranking lower.
Boucher and Patrick Lenain, another author of the report, sidestepped questions from reporters about their support for higher taxation for the wealthy -- a push by President Obama as he seeks re-election.
Lenain said however that the current U.S. tax system "is not neutral" and benefits, for example, home owners over renters, and people whose main income is from capital investments versus those dependent on a salary. The report urges a limit on "tax expenditures that disproportionately benefit high earners."
The OECD cautioned against the large government cutbacks envisioned in Washington's current budget proposals for 2013, calling them "badly timed given the fragile state of the economy."
Boucher cautioned about going over the "fiscal cliff," adding: "A better way to do cuts is with a scalpel, not a meat axe."
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