The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of France 2005 published on 16 June 2005.
France has high productivity per hour worked and a sophisticated social welfare system, but it also suffers from low labour force participation and high structural unemployment. This poor labour market performance contributes to a persistent budget deficit which is exacerbating, rather than alleviating, the fiscal pressures arising from ageing.
Focusing fiscal policy more on transparency and long-term needs
Above all, long-term fiscal sustainability requires better control of public expenditures, including social expenditures and those of regional and local governments. It is important to reform the fiscal system, by reducing the number of organisms involved and simplifying the tax structure through eliminating those tax breaks that are insufficiently justified. This would permit reduction in some high tax rates, which currently create economic distortions.
Creating employment by improving the functioning of the labour market
Employers can not provide the degree of social protection in the labour market that legislation attempts to impose. The high level of employment protection and a high minimum cost of labour raise the cost of employing many lower-skilled people above their productivity, despite reductions in social insurance contribution on low wages. France should substantially reduce the constraints of the standard employment contract, removing the need for a variety of special contracts which generate administrative complexity with little success in reducing unemployment. An improved public employment service, but also effective measures that condition benefit levels on active job search by the unemployed and their willingness to take jobs when offered, must be the counterpart of the high level of contribution with respect to social solidarity.
Allowing competition to create new opportunities for growth and employment
International experience suggests that still substantial public ownership, the only gradual market opening in network industries, protection of some service sector professions and the absence of competition in parts of retailing in France reduce the potential for growth, innovation and employment. Reforms should give greater weight to consumer welfare as against special interest groups. The whole economy would benefit from stronger competition in network industries, reduction in restrictions on entry to many professions and a deep reform of controls on retailing.
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