Productivity and long term growth

Going for Growth 2014: France


Economic Policy Reforms 2014

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Going for Growth  |  Indicators of Product Market Regulation data tool

Like many other European countries, France faces key challenges in the job market. Productivity is relatively high but growing slowly, and the economy is held back by persistently high unemployment and low participation of older workers. Reform priorities include tackling impediments to job creation, facilitating the return to work of unemployed and reducing labour market duality.

Previous Going for Growth recommendations include:

  • Improve equity and outcomes in primary and secondary schools to reduce school failure at an early stage and the impact of the socio-economic background on student’s performance.
  • Improve the quality and efficiency of tertiary education by extending the autonomy of universities, allowing thereby for better funding.
  • Shift the tax burden away from labour, and reduce the relative minimum cost of labour as high labour taxes undermine both labour demand and supply, and high minimum cost of labour reduces job opportunities for the low skilled.
  • Lower regulatory barriers to competition that are hindering both productivity and employment.
  • Reform job protection and strengthen active labour market policies to reduce labour market duality and help unemployed workers to find jobs.

Actions taken: Notable reforms in these areas over the past two years include:

  • More room for wage and working time flexibility: Businesses and social partners can endorse a firm-level agreement for temporary wage and working time reductions in exchange for a job guarantee in economic downturn.
  • The French government lowered labour costs by a tax credit based on a company’s gross wage bill for low to middle-wage workers. This measure has been financed by a hike in VAT rate an increase in environmental taxes and reduction in public spending. More recently, the government announced a plan to reduce social security contributions paid by employers, a measure to be financed by cuts in public spending.   
  • A limited pension reform has been legislated in 2012 that will extend the contributory period from 41 to 43 years by 2035. At the same time, a number of generosity-increasing measures have been included.

The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of France, improving education outcomes, in particular among students of disadvantaged background, and reducing labour market duality would contribute to lower inequality.


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