I. 2. b. 7. f tLRGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT r < * ORGANISATION DE COOPERATION ET OE D E V E L 0 P P E M E N T ECONOMIQUES BASIC STATISTICS OF SWITZERLAND THE LAND Area (thousand sq.km.) 41.3 Major cities, 1966 estimates (thousand Cultivated area (thousand sq.km.) 2.7 inhabitants): Grasslandandpastures(thousandsq.km. Zurich 437 in 1952) 19.0 Basle 216 Forest (thousand sq.km. in 1952) 9.8 Geneva 174 Berne 168 Lausanne 136 THE PEOPLE Population 1966estimates(thousand) S999 Number of foreign workers subject to No. ofinhabitants per sq.km. in 1966 145 control (thousand): Net annualrate ofpopulationincrease, February 1967 530 average 1955-1966 (per thousand) August 1967 648 inhabitants) 8.4 Increaseinthenumberofforeignworkers, Labour force, 1960 census (in per cent annual average 1955-1967 (thousand): oftotal population) 46.3 February census 30 Agricultural labour force, 1960 census August census 31 (in per cent of total labour force) 10.1 PRODUCTION Grossnational product in 1966(billion Expenditure on construction, including francs) 64,3 public works in 1966 (billion francs) 11.3 Gross national product per capita in Gross income ofagriculturein1966(bil¬ 1966 (US dollars) 2482 lion francs) 4.0 Gross fixed investment in 1966 (in per cent of GNP) 26.5 THE GOVERNMENT Public consumption in 1966 (in per CompositionofParliament(percent) cent ofGNP) 11.8 National State Public works in 1966 (in per cent of Council Council GNP) 5.8 Current public revenue in 1966 (in per Conservative Christian cent ofGNP) 25.3 Socialists 22.5 41.0 Debt of the Confederation in 1966 (in Radicals Democrats 24.5 32.0 percent ofcurrent revenue) 86 Socialists 250 4.0 Agrarians 10.5 7.0 Others 17.5 16.0 Last elections: 1967 Next elections: 1971 LIVING STANDARDS Calories per head, per day; in 1965- Number of passenger cars in 1966 (per 1966 3 154 1,000 inhabitants) 168 Food expenditure in 1966 (in per cent Number of telephones in 1966 (per oftotal expenditure in worker fami¬ 1,000 inhabitants) 399 lies) 24.4 Numberofradio sets in 1966(per 1,000 Averagehourlyearnings ofsemi-skilled inhabitants) 280 andunskilledworkersin1966(francs) 5.17 FOREIGN TRADE Exports of goods and services in 1966 Imports of goods and services in 1966 (in percent ofGNP) (in per cent of GNP) 30.0 Main exports in 1966 (in per cent of Main imports in 1966 (in per cent of total exports): total imports): Machinery 28 Food products 16 Chemicals 20 Machinery 15 Watches 14 Fuels 6 THE CURRENCY Monetary unit: Swiss franc. Swiss francper US dollar: 4.33 ECONOMIC SURVEYS BY THE OECD SWITZERLAND ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The Organisationfor Economic Co-operation andDevel¬ opment was set up under a Convention signed in Paris on 14th December 1960 by the Member countries ofthe Organ¬ isationfor European Economic Co-operation and by Canada and the United States. This Convention provides that the OECD shallpromotepolicies designed: to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintainingfinancial stabi¬ lity, and thus to contribute to the development ofthe world economy; to contribute tosoundeconomicexpansion in Member as well as non-member countries in the process of economic development; to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with internationalobligations. The legalpersonality possessed by the Organisationfor European Economic Co-operation continues in the OECD, which came into being on 30th September 1961. The members ofOECD are: Austria, Belgium, Canada, Denmark, France, the Federal Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. TheSocialistFederalRepublicofYugoslaviais associated in certain work of the OECD, particularly that of the Eco¬ nomic and Development Review Committee. This document was approved by the Economic and Development Review Committee in December 1967. CONTENTS Introduction 5 Part I Foreign Labour Policy 5 Thelegalframework 5 Change in foreign labour policies 7 Part II The Impact ofForeign Labour Movements on the Swiss Economy 8 Demographic trends 8 Economicaspectsandeffectsoftherecentforeignlabourpolicychanges 9 Part III RecentDevelopments 15 GNP and expenditure 16 Output and employment 18 External and internal equilibrium ofthe economy 21 Prices and wages 22 Foreign trade and payments 24 Part IV RecentPolicies 27 Monetary policy and credit markets 27 Publicfinance 30 Part V Summary and Conclusions 35 Statistical Annex 41 LU CD < û_ < Cû INTRODUCTION For more than fouryears, the Swiss economy has gone through a pro¬ cess of adjustment to the reversal of official foreign labour policies. The quick and smooth adaptation ofenterprises to the changed labour supply situation has been remarkable, especially in view ofthe rigidity ofthe new employment rules. The advance in labour productivity, slow in previous years, hasbeensteppedup substantially, withamarkedimprovement ofthe cost position. The previous rapid deterioration ofthe current balance of payments has been sharply reversed and progress has been made in stabi¬ lizing industrial and building prices. However, the benefit which the economy could draw from the entre¬ preneurs' efforts to cope with the new labour situation has largely occurred already, and for some time now the growth performance has been unsatis¬ factory. The economy seems to need a new demand impulse to lift it out ofits present stagnation. In view ofthe strong balance ofpayments posi¬ tion and the existing margins ofcapacity, thepresentconditions seemto be well suited for a re-orientation ofpolicies towards an active stimulation of output and productivity. Afterabriefexpositionofthe legal framework andthe rules governing theimmigrationand employment offoreignersin Part I, thepresent Survey outlines in Part II the quantitative developments and changes in the struc¬ tural composition offoreign labour force during the 'sixties, and examines the economic changes which have taken place since the authorities have decided to restrict the influx offoreign labour. Parts III and IV deal with recent economic developments and Part V discusses prospects and policy requirements. Part I FOREIGN LABOUR POLICY Thelegalframework Until the First World War foreigners enjoyed practically full freedom ofimmigrating and exercising a vocation in Switzerland. Because ofthe OECDEconomicSurveys growing concern about a possible excessive increase ofthe foreign share in thepopulation,specialpowerstocontrolandrestricttheinflowofforeigners were accorded the Federal Council in 1917, and subsequently (1925) were firmly established in the Constitution. In 1931 a Federal law relating to thestayandsettlementofforeignersin Switzerlandwas enacted; after some amendmentsin 1948itisstillinforce. Itstipulatesthattherulesgoverning the employment offoreigners should be determined by the general interest ofthe country, but their formulation has been largely left to the discretion of executive organs ofthe Confederation. The regulations in force distinguish between three types of residence permits: temporary staypermits,permitsofsettlementorestablishment, and tolerance permits. Except for tourists and other foreign visitors, non- Swiss are not allowed to stay on Swiss territory without one ofthe above- mentioned authorisations. A foreigner establishing himselfin Switzerland for gainful activity must be in possession ofa residence permit which has, in principle, a time limit. In fixing the duration ofstay, account is taken of the labour market situation and, in case of prolongation, also of the behaviour ofthe applicant. In general the duration does not exceed one year or, for seasonal residence, nine months. Temporary residence certi¬ ficatesincludeautomaticallyaworkpermitforaspecifiedjob,whichcannot be changed without permission. Foreigners wishing to settle permanently in Switzerland can be released from police control normally only after tour years, and apply for a permanent residence permit. Such a permit putsforeigners onthesamefootingasSwisscitizens,withcertainexceptions as to self-employment. Duringthe 'thirties the admission rules had beenvery severe, the main objective beingto reduce the number offoreignworkers and to easeunem¬ ployment. By contrast, the Federal authorities adopted avery liberal atti¬ tude during the 'fifties and the early 'sixties in order to meet the growing shortage of labour. But despite a sharply accelerated intake of foreign labour, Switzerland has been confronted with mounting inflationary pres¬ sures since 1961. This has been one ofthe factors which led to a general reconsideration offoreign labour policies. The danger offoreign infiltra¬ tion was conjured up in campaigns againstthe "Ûberfremdung"; butthere was also a growing sector ofopinion arguing that, even from a purely con- junctural policy point of view, it would be advantageous for Switzerland, at least temporarily, to stabilize the number of foreign workers. On the demand side, itwas argued, thiswould help to easethe shortage ofhousing and overhead capital, slow down the growth ofprivate consumption and productiveinvestmentneeded to equip new workingplaces; ontheproduc¬ tion sideitwould step up productivity advances through increased rationa¬ lization efforts and higher "labour morale" and discipline. Switzerland Change inforeign labourpolicies This opinion finallyprevailed and led to a number ofsuccessive moves to curb the inflow offoreign labour: (/) In early 1963 the Federal authorities decided to issue temporary residence permits only to those foreign workers entering enter¬ prises where total employment of Swiss and non-Swiss, after engaging the foreign worker, did not exceed the peak in Decem¬ ber 1962 or the average in theyear 1962. This rule remained in force until the end of February 1964. (/'/) In February 1964 it was decided to restrict the issue of employ¬ ment permits to those firms whose total employment did not exceed 97 per cent ofthe level in March 1964. (in) In March 1964 the above measures were supplemented by rules for taking in labour from certain countries. Stay permits for foreign workers from those countries were to be granted only to employers who wereable to provethat theforeign worker would enjoy adequate housing and social security facilities. Non-sea¬ sonal workers should be admitted only if qualified and ofparti¬ cular interest to the Swiss economy. (iv) In October 1964 the global ceiling of 97 per cent (reference period March 1964) was lowered to 95 per cent. (v) In February 1965 a double ceiling system was introduced. In maintaining the global employment ceiling it was, in addition, stipulated that individual enterprises should reduce the number offoreigners employed (subject to control)by 5 percentbetween 1st March and 1st July 1965. Furthermore, permits were no longer to be granted to foreign workers entering Switzerland in search ofemployment but only to those engaged by Swiss enter¬ prise prior to arriving in Switzerland. Exemptions were made lessgenerousthanthoseaccorded previously. Theywerelimited to agriculture,forestry, domesticservices, hospitals, varioussocial institutions and firms employing less than five foreign workers and those which had reduced their foreign labour force by more than 10 per cent or by more than twenty workers as against March 1963. (w) The regulations laid down in March 1966 raised the global em¬ ployment ceilingby4percent1, butenvisaged afurtherreduction 1 As from April 1966 employers were allowed to increase their total number of employed by 4 per cent but only in as far as they were able to hire Swiss workers or foreigners not subject to police control. OCDEEconomicSurveys ofthe number offoreign workers subject to control: 3 per cent from March to August 1966 and another 2 per cent by the end ofJanuary 1967. (Reference period 1st March 1965 or the ave¬ rage number offoreigners employed in 1964, whichever was the higher.) These arrangements excluded frontier workers and, partly, foreigners engaged in scientific research or in the tourist trade. Theceilingsweretobeappliedlessrigidlythanpreviously in thecase offirmswhichhadreducedtheirtotal employmentby 15 per cent or more since 1st April 1963. (v/i) A further 2 per cent reduction ofthe number offoreign workers (subject to control) was decided in February 1967, to be effected by the end ofJuly, bringing the total reduction since 1st March 1965 up to about 12 per cent. At the same time, the global ceiling was raised from 104 to 110 (reference period March 1966 = 100). Part II THE IMPACT OF FOREIGN LABOUR MOUVEMENTS ON THE SWISS ECONOMY Demographic trends Switzerland has traditionally been a country with a particularly strong proportion of foreigners. Her favourable geographical position in the centre ofEurope, her neutrality and long liberal traditions, her population and language structure, her stable and prosperous economy and the beauty ofthe landscape have, for a longtime, induced foreigners to settle down in Switzerland. The change in policy attitudes vis-à-vis foreigners has how¬ ever influenced the movements and composition ofthe foreign population importantly. The net immigration offoreigners came to a haltjustbefore the outbreak of the First World War when the share offoreign residents in the total population had reached an all-time high of more than 15 per cent. Thesubsequentchangeofpoliciesandothereventsreducedtheshare to about 5 per cent by the end ofthe Second World War. The following twenty years saw a progressive growth of the foreign population with a sharp acceleration during the early 'sixties. Since 1963 the foreign popu¬ lation share has remained fairly stable at around 14 to 15 per cent. The persistent increase in the number of foreign residents during the post-war period has been accompanied by marked structural changes with an important bearing on the Swiss economy. According to the last two population census figures the activity rate ofnon-Swiss résidente increased 8