Productivity growth is a precondition for promoting better wages and working conditions and hence achieving high quality jobs for all. This chapter therefore discusses the main drivers of worker productivity and the role of policies and institutions to foster it. To this end, it focuses on the role of skills development, the performance of firms, with an emphasis on work and management practices, and the process through which workers are allocated to jobs in different firms.

While productivity growth is a pre-condition for rising standards of living it does not automatically translate into higher wages and better working conditions for workers. This chapter discusses the role of minimum wages, collective bargaining and labour taxation for promoting a broad sharing of productivity gains. Wage-setting institutions can help avoid that the proceeds of productive labour disproportionately go to capital, but also risk pricing low-productivity workers out of the market. To increase their effectiveness and mitigate any potentially adverse employment effects, a good coordination of wage-setting institutions with the system of labour taxation is crucial. This will also help to limit the adverse effects of labour taxation on labour market outcomes.

This chapter focuses on the role of policies and institutions for promoting an effective labour supply by ensuring that work is accessible, attractive and sustainable over the life-course. This first of all requires tackling barriers to employment through the use of a comprehensive activation strategy that combines measures to enhance motivation with measures to promote employability and foster job opportunities. However, it also requires measures to make work more attractive and sustainable by ensuring that work pays, workers are protected against the risk of unemployment and workers can enjoy a healthy work environment.