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The following OECD assessment and recommendations summarise chapter 2 of the Economic Survey of France published on 28 April 2009.
But the low employment rate is still one of the main reasons for the government deficit, which militates for continued labour market reforms
Over time, a very significant rise in the employment rate (still one of the lowest in the OECD) would do much to balance the public accounts while allowing contribution rates to be cut. Once the crisis is over, the government should refocus on boosting the employment rate. The well known priorities for doing so can be summarised in three points: i) maintain efforts to reduce the minimum labour cost of low skilled workers (relying henceforth more directly on moderation of the minimum wage but without undoing the reductions in social contributions for low wage earners) and increase their financial incentives to work; ii) take further steps to relax legislation governing dismissals and layoffs, while making the unemployment insurance system more effective; and iii) enhance the incentives to continue working beyond 60 years of age (let alone after age 55), while ensuring that businesses cannot abuse the new mutual consent termination provisions by foisting older workers onto the unemployment insurance system. Reforms have been introduced in each of these areas, but additional efforts will be needed if they are to produce significant changes.
For example, the fact that the minimum wage (SMIC) has been raised more slowly than median income over the last few years is noteworthy, as is the planned creation of a group of independent experts to advise on appropriate changes to the SMIC. These decisions should reinforce the trend decline in the share of workers paid the SMIC. As well, with the introduction of the RSA, the social insurance system has been significantly reformed to increase the incentives to work for those least attached to the labour market, helping to reduce poverty and social exclusion. At the same time, numerous changes have relaxed the rules governing working time, but retention of the legally mandated 35 hour week has been made costly to the treasury in terms of foregone tax revenues from work in excess of that limit; its effectiveness should be closely assessed.
When it comes to dismissals and layoffs, the regulations governing indefinite term labour contracts have been relaxed slightly, with the introduction of termination by mutual consent of employer and employee (rupture conventionnelle). Yet, in its current form, this type of agreement poses the risk of abuse of the unemployment insurance system. Moreover, while the various other changes introduced under the agreement between the unions and management on “modernising the labour market” have marginally improved flexibility in hiring and firing procedures, they have done nothing to overcome the dualism that exists in that market. As the notion of a “single contract” was rejected outright by both sides, there is nothing in the accord that will serve to narrow the gap, even partly, between workers who benefit from significant protection and those in a much more precarious situation. In addition, the public employment service has also been reformed through the creation of the “Pôle emploi”, a one stop shop, as the OECD recommended in its last Survey, resulting from the merger of the ANPE and UNEDIC. However, the reform could go further by ending the two organisations’ distinct systems of governance. At the same time, the recently approved definition of what constitutes a “reasonable job offer” will strengthen the incentive to look for work and thereby help shorten the duration of unemployment spells.
Work incentives for seniors have improved, but further progress is needed
Finally, a number of appropriate measures have raised the incentives for older workers to pursue employment: these include the progressive lengthening of the pension contribution period, an increased surcote (the additional pension given to those who contribute for more than the normal number of years), withdrawal of the waiver of job search requirements, the possibility of combining employment income and pensions, an increase in the mandatory retirement age and reform of the special pension regimes. Yet an increase in the employment rate for seniors is also hostage to the legal retirement age, which is still below the level prevailing in many other OECD countries. Consequently, one of the best options for enhancing the sustainability of the pay as you go pension system would be for the coming negotiations to yield an agreement to raise the legal retirement age.
Figure 2. Employment and per capita GDP trends: France versus the United States
Per capita GDP in current PPP, in USD thousands: vertical axis
Employment rate, as a percentage: horizontal axis
How to obtain this publication
The complete edition of the Economic Survey of France is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the French Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Alain de Serres and Rafal Kierzenkowski under the supervision of Peter Jarrett. Research assistance was provided by Patrizio Sicari.