Unemployment: really going down ?

The recent announcement that the unemployment rate in mainland France has fallen to its lowest level in over ten years has led to much comment and analysis. The government is clearly delighted that such good news should break just a few days before the European elections and sees it as a vindication of its policies at a time when its list, led by the decidedly uninspiring Nathalie Loiseau, is running neck and neck with that of the Rassemblement National led by a young protégé of Marine le Pen. Others point out that, even if unemployment has fallen consistently since the election of Emmanuel Macron, a rate of 8.7% is still among the highest in the EU and compares unfavourably with that of Germany and the UK, although slightly better than that of Spain and Italy. They also highlight the paradox that there are 2.8 million people enrolled in the national employment agency at a time when so many jobs are on offer and that so many businesses are unable to find the employees they are looking for.

In a way, both are right. Or at least not entirely wrong. But whatever credit the government can take for the steady fall in unemployment over the past two years, the underlying situation is more worrying than it would like to make out.

The government can indeed take some credit for the downward trend in unemployment: Emmanuel Macron has consistently maintained that putting more people into work is the key to putting more money in people’s pockets, reducing social inequality and, at the same time, alleviating pressure on public spending. True to this vision, the government has made the labour market more flexible and given a boost to apprenticeships and vocational training since it came to power, as this blog has often reported. Even the emergency measures to contain the revolt of the gilets jaunes are primarily designed to favour people in work or actively seeking it: a reduction in welfare charges on overtime, an increase in employment related tax benefits and bigger handouts to single parent families. Taken together, all these measures will surely put more downward pressure on the unemployment rate as more vacancies are filled.

This being said, it is hard to see the French unemployment rate falling to German or UK levels without big changes to the benefits system and, more significantly, to the culture of work in France. In the euphemistic expression of an expert on the radio the other day, the French social model “is more protective than most”. Meaning that benefits of all kinds and particularly unemployment benefits are more generous, and more easily granted, than in most other countries. A restaurant owner I know in the Morbihan (a coastal département in Brittany) told me recently that he was having great difficulty finding a waiter for the winter. A number of those who showed some interest in the position made it clear that they were better off working for just a summer season and drawing unemployment benefits during the winter…but if the restaurant owner were willing to pay them cash under the table, they may be more interested! The CEO of a small construction and renovation firm in the same département told me that he had enough orders for another two permanent employees if only he could find them, but he couldn’t  In his experience, it was not just that potential applicants lacked the skills, it was simply that they found the work too demanding and the hours too long (despite the fairly strict observance of the 35-hour working week!). An article in the local newspaper reported in the same week that the regional employers’ organisation was desperate to fill at least 500 vacancies for delivery drivers and countless other unskilled or semi-skilled jobs.

What appears to be happening is that many people looking for work are only prepared to envisage clean, fairly undemanding and safe jobs, preferably not starting at 7 or 8 in the morning!  Unlike in Germany or the UK, a lot of the French reject the idea of zero-hours contracts or mini-jobs of the kind that have driven unemployment levels in those countries to record lows. Or putting a different gloss on it, why should they bother to accept such irregular jobs when a few months in a regular job is usually sufficient to be able to draw unemployment benefits for a few more? It is true of course that most job creation today is in service industries, that frequently offer irregular and unsocial hours, little stability and minimum benefits, if any. French unions and left-wing politicians regularly deride these kinds of jobs and the result is that they are alien to the work culture in France, where any job that does not guarantee a full working week, full benefits and at least the minimum wage is widely considered inferior and therefore undesirable. And especially after the gilets jaunes revolt, no French government is about to legislate to introduce them, nor any political party to champion them.  And yet, large numbers of young French people still emigrate temporarily to London for instance where they can easily find work, although it is invariably low-paid, unstable and they have to share cramped accommodation with three or four other people. Even if learning English is one of their motivations for working in London, it is not unreasonable to assume that they would prefer to find such jobs in France, where they would also benefit from a higher minimum wage and mandatory benefits. But that is precisely one of the reasons that stops employers from taking on unskilled and temporary staff. If wages were lower, hours more flexible and benefits optional, they would be willing to take on more of them. But in the present highly regulated labour market, they are not. As President François Mitterrand once famously said, “we have tried absolutely everything to reduce unemployment.”  Letting a lightly regulated labour market find its own equilibrium was clearly never an option. Nor has it ever been seriously considered in a country where social cohesion is more than just a slogan, and which does more than any other in the EU to reduce income inequality through social transfers.

If my reading of Macron’s economic strategy is correct, he is nevertheless moving ahead not only to promote greater employability through his reforms on training but also, slowly, cautiously and the gilets jaunes notwithstanding, on changing the incentives and disincentives to employment. A further test of his determination will come soon with the government’s proposed legislation to reform unemployment benefits and above all, pension benefits. On unemployment benefits, the government has not yet shown its full hand, but targeted leaks talk of executives’ benefits being reduced. This would not exactly be a seismic shift given the fact that unemployment among executives is about a third of the national figure. Nor would it be entirely fair, as executives, and their employers, are by far and away the biggest contributors to the unemployment insurance scheme in the first place. Are bigger changes in the incentives and disincentives to employment in the offing? Barring last-minute surprises, it doesn’t appear likely. The same seems to be true for the other major reform that Macron promised during his election campaign, that of pensions. Discussions have been going on for months between the unions and a government appointed mediator to knock into shape the bold promise that the 44 individual pension schemes, all of which of course are very much under the thumb of the state, would be merged into one, putting an end to the complexity of the current system and more importantly to the particularly generous pension scheme for public sector workers in general and utilities workers in particular. It could reasonably be argued, after all, that the French work shorter hours and take longer holidays than in most other countries and that they should therefore be required to work longer before drawing a pension, especially as life expectancy is now a lot greater than it was when the current arrangements were introduced after the war and that President Mitterrand made even more generous in 1981 by reducing, at a stroke, the retirement age from 65 to 60. Again, according to leaks to the media, the government’s strategy is to shift to a new system in which the “official” retirement age would remain at its current level of 62, but that all employees would in reality have to contribute longer to earn a decent pension. Once again, the government appears to want to act by stealth rather than coming clean and telling people the unvarnished truth.  So, even if these two reforms might still herald a big shift in the incentives and disincentives to employment, the signs at the moment are that, like so many reforms in France, they will be too timorous and half-baked to make a big difference.

But without such shifts in the system, and, more importantly, in the culture of work they might gradually bring about, don’t expect to see the French unemployment rate fall much lower than 8.7% and certainly nowhere near the levels of Germany and the UK.