Unexpected unemployment insurance deficit announced

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France's UNEDIC unemployment insurance scheme had been forecast to end 1997 with a small surplus . Late in the year, however, it drew up a revised forecast showing a deficit that is expected to reach FRF 1.4 billion.

A three-year restructuring programme has enabled the jointly-managed UNEDIC unemployment insurance scheme to clear a financial surplus in excess of FRF 40 billion. However, in late 1997 UNEDIC published its latest estimates which, contrary to expectations, show an operating deficit of up to FRF 1.4 billion, rather than the expected surplus of FRF 1 billion.

Three factors have led to this deterioration in UNEDIC's financial situation :

1. An increase in the number of jobseekers receiving benefit. In spite of the creation of 180,000 new jobs in 1997, the overall number of people out of work continues to grow. UNEDIC had previously based their figures on an increase of 15,000 in the jobless total but the latest statistics put the actual figure at 45,000. This rise has resulted in an increased outlay in benefits for UNEDIC.

2. The agreement signed in December 1996 between employers and unions (CFDT, CGT-FO, CFTC, CGC) aimed at an upgrading of benefits paid to the unemployed. This increase was justified by the surpluses that had been released by the scheme since 1995. This agreement was implemented in a context that was less favourable than expected and contributed to pushing the insurance scheme into the red.

3. Increased outlay linked to the payment of benefits for the "employee replacement scheme" (Allocations de Remplacement pour l'Emploi, ARPE) which was set up in September 1995 as a result of an agreement between employers' associations and all the unions. This measure, which enables older employees to retire early if their employer agrees to replace them with a young unemployed person, has been a great success. However, it has resulted in major costs (FRF 7.5 billion in 1997) for UNEDIC, since the financial savings made by taking one young person off the unemployment register does not cover the early retirement benefits paid to the person replaced.