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The following OECD assessment and recommendations summarise Chapter 2 of the Economic survey of France published on 27 June 2007.
Compared with the median wage, France’s minimum wage (the SMIC) is the highest in the OECD. It is often thought of as a means to combat household poverty, although it is not a good instrument for this purpose. It has come to be seen as a wage norm rather than a starting wage, as elsewhere. Given strong increases in the past, the SMIC has risen faster than the productivity of the low skilled. To increase low skilled employment, the SMIC should grow at much slower rates in the future by at a minimum avoiding discretionary increases. Over a long period the SMIC should rise no faster than the productivity of the low skilled. This would allow for a less compressed wage distribution above the SMIC level that revives the prospect of moving up the income scale. A more considered way of determining the SMIC would make greater use of expert opinion and consultation, as in some other countries (for example in the United Kingdom’s Low Pay Commission) Reductions in social charges on wages close to the SMIC have been beneficial for low skilled employment, allowing it to grow during the 1990s and be maintained by avoiding increases in the cost of such labour during the implementation of the 35 hours legislation. To fight poverty there is a better solution than raising the SMIC and further cuts in social charges. This would use the prime pour l’emploi (PPE), an earned income tax credit, and focusing it more directly on poor families. In devising a better combination of these tools, care should be taken to try to keep marginal effective tax rates as moderate as possible over the range of income where benefits are phased out.
Governments have sought to protect those in work with rules that make it complex and costly to dismiss an employee with a standard indefinite labour contract (the CDI); costs arise notably from uncertainty surrounding ex post judicial decisions on dismissal procedures. Firms have responded in part by recourse to short term contracts such as CDDs, to help them adjust to shocks and structural change. The resulting dualism sets workers with CDIs against the unemployed and certain wage earners who remain for a long time in insecure employment. It makes it sometimes difficult to move into a CDI, potentially exacerbating poverty and certainly adding to perceived insecurity, since the risks of getting trapped in the ‘outsider’ category are substantial. The feeling of insecurity does not spare insiders either, as they may fear loss of security even while they benefit from it. Limiting dualism and facilitating labour market turnover can help people to remain in employment on a more lasting basis, even if some may have to change jobs relatively frequently. Employment protection legislation therefore needs to be overhauled. One possibility is for the government to introduce a single contract, such that protection gradually increases in line with experience with the firm, conserving a role for judicial monitoring to avoid unfair dismissals (such as in the case of discrimination) while leaving the judgment as to the economic relevance of a decision to dismiss one or several employees to the employer alone. But there is a risk that the “single contract” solution could ultimately lead to less overall flexibility than existing arrangements, if the uncertainty that surrounds the level of detail of judicial interpretation remains. If this risk precludes such a comprehensive reform, other ways to ease the legislation on CDIs, such as widening the definition of economic dismissal, simplifying layoff procedures and reducing firms’ redeployment obligations, must be considered. Any new arrangements will improve matters only if they provide employers with at least as much flexibility at the beginning of a contract as does the current situation.
Poverty is all the more detrimental when it persists over time. The unemployed are entitled either to unemployment insurance, if they have contributed long enough, or to some other form of income. There are nine “social minima”, social transfers intended for the poorest groups of people, the main one being the minimum subsistence income (RMI). Entitlements and obligations vary greatly across the various schemes. It is important to harmonise the rights and obligations of jobless and potentially active people, introduce a common system for bringing them back into employment, make looking for work compulsory and target the measures on those most in need instead of on the particular benefit they receive. Harmonisation requires a system in which one single nationwide institution is in charge of all the schemes, which would be much easier if the body providing placement services for the unemployed (the ANPE) were better coordinated with and in the longer run merged with that responsible for unemployment insurance (UNEDIC).
The geographic concentration of poverty fosters its persistence, as people living in overwhelmingly poor areas lack access to social networks that might help them to integrate into the economy. The problems in question are made more complex by the fact that people of immigrant origin are over represented in these areas. To deal with them “zoning” policies involve concentrate resources on such areas without targeting specific population groups. The most developed example relates to education. Targeting resources at education priority areas (ZEPs) has had a positive impact but also gives rise to the wrong sort of incentives. Areas classed as ZEPs are stigmatized; those who succeed leave them, and those who have the choice avoid living there. The schools in question are staffed with teachers who have less experience and are unable to choose where they are posted. A larger proportion of resources should be allocated as a function of schools’ needs rather than according to their location. The schools selected in the “ambition réussite” programme can be thought of as a first step in this direction. Furthermore, the system of salary and other incentives for teachers choosing to work in these establishments needs to be better thought out. This approach could be generalised to other interventions, shifting the focus of support more directly onto individuals. Notwithstanding this general approach, there will clearly be occasions when radical, geographically defined measures are appropriate.
Housing is also central to these problems, both as a reflection of poverty and as a factor potentially contributing to exclusion. Publicly provided low cost rental housing aims at social diversity, precisely to mitigate the geographic concentration of poverty. But the resulting widespread eligibility for such housing leads to excess demand for it. Even if charging income related rents meant that financial assistance were given only to people who need it, it is not certain that provision of public housing alone could eliminate homelessness, let alone substandard housing. For given resources, increasing benefits provided directly to individuals as housing assistance (which currently amount to about 0.8% of GDP) would be more efficient. However, if housing supply is partially inelastic in the short run, such assistance inevitably has the generally unpopular effect of benefiting landlords as well. To increase the elasticity of supply, legislation on security of tenure may also need to be revisited; for example, the effect of regulations making it difficult to terminate a lease in the event of non payment is certainly to reduce overall supply for low income tenants. Regulations concerning the renting of accommodation must not be such that they depress the supply of private housing. Efforts to provide support for poor families must be continued and focus on cost effective ways of increasing supply.
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:
For further information please contact the France Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Paul O'Brien and Stéphanie Jamet under the supervision of Peter Jarrett.