UPDATE 1-OECD urges Germany to tackle social divide in employment

Tue May 13, 2014 10:50am EDT

* OECD recommends steps for sustainable growth and social mobility

* Welcomes new minimum wage but criticises pension reforms

* Says wants regional banks and government stakeholdings sold off (Adds quotes from Economy Minister Gabriel, Gurria)

By Michael Nienaber

BERLIN, May 13 (Reuters) - Germany should pursue reforms to narrow the social divide in employment and pave the way for more sustainable growth, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

Europe's biggest economy has proved resilient amid global financial turmoil and the euro zone debt crisis, and German unemployment stands at post-unification lows even as job losses mount elsewhere in Europe.

"Germany is doing very well, but our aim is to make sure that everybody is on board," OECD Secretary General Angel Gurria said at a news conference with German Economy Minister Sigmar Gabriel in Berlin.

The OECD's Economic Survey on Germany said the social mobility of low-earners in the labour market had shrunk, adding: "While income inequality is lower than in most OECD economies, the share of low-paying jobs has risen considerably."

The OECD urged Chancellor Angela Merkel's coalition government to take decisive action in this and other areas and promote a "more inclusive model of growth" based on good wages, a fair tax system and equal opportunities in education.

The OECD welcomed the planned phasing-in of a minimum wage across all sectors but said more needed to be done to give temporary workers rights equal to those of full-time employees.

TAX REFORM

Lowering taxes on labour, broadening the tax base by updating property tax valuations and extending capital gains taxes on some residential real estate would free up capital to invest in infrastructure, full-day childcare and better education for children from low-income families, it said.

"Breaking the link between students' socio-economic background and their education performance is key to making economic growth more inclusive," Gurria said, adding that this was a particularly pressing problem in Germany.

The OECD criticised Germany's pension reform plans, saying raising pension entitlements and lowering the retirement age for some employees would make it harder to reduce labour costs without necessarily alleviating poverty risks among the elderly.

Gabriel welcomed the OECD's recommendations, but defended plans favoured by his Social Democrats, who share power with Merkel's conservatives, to lower the retirement age to 63 for workers who have contributed 45 years to public pension funds.

"This is a question of fairness", he said.

PRIVATISATION

The Paris-based organisation of mostly rich countries also called for reforms in the financial sector and the reduction of risks emanating from Germany's regional state-owned banks or Landesbanken - "including through privatisation".

Many German states oppose this, with private participation so far only in HSH Nordbank, where the private equity firm J.C. Flowers holds 9 percent.

Germany should take further steps to ensure banks are adequately capitalised and that bank debts are included "as comprehensively as possible in the future bail-in instrument" when new European Union banking directives are implemented.

The OECD reiterated its advice that Germany should push on with the privatisation of government stakes in formerly public companies, such as its roughly 32 percent in Deutsche Telekom and 21 percent in Deutsche Post.

The Federal Audit Office has also urged the government to relinquish its stake in Telekom, although the finance ministry says it has no such plans at present. (Reporting by Michael Nienaber; Editing by Stephen Brown and Hugh Lawson)