Economics Department

Economic survey of France 2007: The key challenges facing the French economy

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 1 of the Economic survey of France published on 27 June 2007.

Contents                                                                                                                           

 

French people have rather high expectations of their economy. In many respects it meets these expectations, delivering a high overall standard of living for relatively short working hours. Recently, output has been growing, unemployment has been falling and public finances have improved. Nevertheless, it is taking a certain amount of time for this progress to be reflected in public opinion. Poverty is no more widespread in France than in most advanced European countries, yet the public tend to believe that it is. A feeling of pessimism and insecurity has been sustained by persistently high unemployment, often leading to social exclusion, a problem for which the educational system struggles to find solutions. Demographic ageing, long foreseen but whose consequences have not yet been fully addressed, will soon be having a real impact on labour force developments and public finances. This Survey concentrates on these linked issues – most of which have been raised in Going for Growth 2007 – of unemployment, ageing, poverty and social exclusion, with which the new government will have to deal. Short term economic trends are given less attention, though they merit continuing monitoring. Meanwhile, a quiet revolution in the organisation of public finance has delegated a number of important functions – including many related to poverty and social exclusion – to sub national levels of government. The Survey also looks at the consequences and challenges of this less well known phenomenon, especially as it interacts closely with the efficiency of government intervention in social and labour market policies.

 

Employment is the main means of combating not just poverty, but also individuals’ sense of exclusion; it integrates people into society beyond merely providing an income and also enables them to gain experience and accumulate skills. Getting more people into jobs, hence contributing to growth and paying social insurance and income taxes, would provide finance for pensions, health and dependency expenditure and contribute to long term fiscal sustainability, which is far from assured. While the education system is doubtless partly to blame for poor labour utilisation, especially where young people are concerned, there is a two way link: its ability to motivate young people would be boosted if the labour market functioned better.

 

France has implemented some significant reforms to public finance over the last few years, although vigilance cannot be relaxed and further measures are needed. The 2003 pension reform, which increased the contribution period and aligned the civil service scheme on its private sector counterpart, and the 2004 sickness insurance reform designed to make health sector professionals and patients more responsible, have together improved the budgetary outlook. Efforts to modernise State finances, with the full implementation of the new budget framework law, have also been important. Efforts have also been made in respect of the labour market. Notably, working time regulations were relaxed somewhat in 2003 and 2005, making recourse to overtime easier; a reform of the public employment service, whose results remain to be seen, is also under way. But progress has been much less significant in the case of employment protection legislation. The regulations governing work contracts have been relaxed for small companies with the introduction of a new type of contract (the Contrat Nouvelle Embauche), but this is not available to firms employing over 20 people. A similar option for any firm taking on young people was abandoned after popular protest, but the need to reform rigid labour market institutions and practices remains. Dealing with economic adjustments by measures designed to insulate the French economy or protect certain jobs or industries is both costly and, in the end, usually ineffective; the restated OECD Jobs Strategy shows that what is needed is to protect people, rather than existing jobs, and to promote work opportunities. Nor can demand based policies to stimulate the economy solve fundamental supply side deficiencies; moreover, they undermine public finances. The 2005 OECD Economic Survey devoted a chapter to the labour market, and the recommendations there remain relevant.

 

The State has not reduced the number of its civil servants in line with the reduction in its responsibilities. Lower levels of government have been recruiting massively. The resulting sharp rise in government employment leads to increased pension costs for the future as well. The State must take advantage of the forthcoming retirement of large numbers of its civil servants to reduce overall government employment. So called “deconcentrated” State services, which duplicate the efforts of corresponding agencies of sub-national governments, should be evaluated and abolished if they are not strictly necessary.

 

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. The complete edition of the Economic survey of France 2007 is available from:

Additional information                                                                                                  

 

For further information please contact the France Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Paul O'Brien and Stéphanie Jamet under the supervision of Peter Jarrett.

 

 

 

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