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Luxembourg’s economic attractiveness

Luxembourg is one of the founder countries of the European Economic Community, now the European Union. Despite its small size, in geographic terms, the Grand Duchy of Luxembourg plays a very active role within the European context and is the leader in many fields.

Luxembourg is the European Union country that has the highest per capita income and productivity per worker. Per capita gross national income in Luxembourg in 2005 was the world’s highest (World Bank figures), while its productivity per worker is 60% higher than the average productivity of the European Union. The latter figure justifies the high wages and the attraction that this small country has for workers of other origins, Portugal in particular.

Others exemplary aspects of the Luxembourgeois economy in the European context are the relative equity of the distribution of income and the low risk of poverty. Nevertheless, the tax burden on employment in Luxembourg is one of the lowest of the European Union when calculated on the basis of the implicit rate of tax – a fact that is offset by the high tax burden on consumption.

At the end of 2006 the unemployment rate in Luxembourg stood below 5%, one of the lowest figures of the European Union. This is consistent with increasing demands insofar as company recruiting is concerned. Furthermore, work in Luxembourg is tending to be increasingly qualified in the light of the structure of the economy itself.

The Luxembourgeois economy is largely based on the services area. Over 80% of the active population is employed in this sector. Moreover, Luxembourg is the European Union country in which the services sector accounts for the greatest relative share of the non-financial economy, when measured on the basis of the gross value added of this sector.

One of the main factors underlying the development of the Luxembourgeois economy is the inflow of foreign capital, which more than offsets the (naturally) large trade deficit. The Luxembourgeois current account balance has returned annual surpluses equal to about 10% of the GDP.
Over the past ten years Luxembourg’s economy has grown at an average annual rate of 5% - a figure that was exceeded in 2006 – while employment has risen at an annual rate of more than 3.5%.

Symbolically speaking, Luxembourg’s example shows that the size of a country does not determine the living standards of its citizens.

© 2007 Presidency of the Portuguese Republic