Shift in employment policy proposed

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In December 2000, the Economic Analysis Council published a report looking at the criteria necessary to attain" full employment" in France by 2010. Macroeconomic policies guaranteeing strong, sustained growth require more stringent structural policies to stimulate labour supply and improve labour market efficiency, the report states. Responses from the social partners have been mixed.

The Economic Analysis Council (Conseil d'analyse économique) was set up by the current Prime Minister, Lionel Jospin, to provide guidance on economic policy. It is made up of various economic experts from a range of backgrounds. Responsibility for reports published by the Council are entirely the responsibility of individual authors. The Council's 30th report, issued in December 2000, deals with "the road to full employment" ("Plein emploi", Jean Pisani-Ferry, Conseil d'analyse économique, la Documentation Française, Paris, December 2000). This report was particularly high profile for two reasons. First, it was written by the economic advisor to Dominique Strauss-Kahn when the latter was Minister of Economy and Finance. Second, the report comes at a time of major debate in France over the whether or not it is necessary to redirect the current thrust of employment policy.

At first sight, it would appear inappropriate to change a successful policy. France has created 1.6 million new jobs since early 1997, and the unemployment rate has dropped from 12.3% to 9.4% (at the end of October 2000) (FR0007179F). Of course, these results are linked to renewed EU-wide growth, but the fact is that France has performed better than the other largest EU Member States (Germany, Italy and the UK). This is due, at least in part, to the significant shift in employment policy implemented by the "current left-wing coalition" government, which includes reducing working time (FR0001137F), introducing a youth employment scheme and putting in place policies aimed at long-term unemployed people. The Pisani-Ferry report underscores these success stories but also maintains that they have led to changes in the scope of the problems and priorities.

The report stresses first and foremost the scale of remaining disparities in the labour market, including:

  • unemployment above the EU average despite the fact that companies are facing increasing labour shortages;
  • a relatively low employment rate among people of working age, especially among the over-55s; and
  • major under-employment.

One of the main statements to come out of the report is that France is now nearing – possibly some time in 2001 - its "non-accelerating inflation rate of unemployment" (NAIRU- the "natural" rate of unemployment), which is estimated at just over 8%. Consequently, this will raise new problems.

The goal is to cut unemployment to 5% - if possible by 2005 or by 2010 at the latest. This, says the report, will require the creation of at least 300,000 new jobs per year until 2010. This is below 1997-2000 figures, but well above the pre-1997 performance of the French economy. The report looks at the potential dovetailing of macroeconomic policies and structural overhaul of the labour market needed to meet the stated goals.

To cut unemployment to desired levels, not only will France have to lobby for active EU economic policies but it will also have to attain sustained economic growth above the EU average. The report puts great emphasis on supply-side policy (training, research, innovation and investment) and on continued French tax competitiveness (as regards return on financial investment and income tax for highly-skilled workers).

Labour market proposals

In his report, Mr Pisani-Ferry deals mostly with overhauling the labour market. His proposals in this area are likely to cause most controversy. Indeed, he argues that rapid, sustained growth can be achieved only if the NAIRU is cut drastically. This would require greater supply and mobility of labour and lower labour costs. To achieve this, the report advocates:

  • abolishing systems that encourage people not to work. The report advocates the elimination of early retirement schemes and a shake-up of the pension system to make continued employment more attractive. The report also suggests tackling the phenomenon of "unemployment traps", which result from only slight differences between "non-employment income" (ie minimum welfare benefits) and take-home pay from low-skilled work. It advocates the setting up of a sliding-scale tax credit for employment-based income ("negative tax") to encourage people to accept low-wage jobs;
  • various active labour market policy measures by the public employment service, geared to creating individual back-to-work plans for unemployed people, especially those experiencing the most difficulty in finding work, and better matching jobseekers with vacancies. If this approach is to be successful, eligibility for unemployment benefits has to be made conditional on jobseekers actively looking for work and accepting any appropriate employment. The report refers to the outcome of recent difficult negotiations on unemployment benefit reform (FR0010195F); and
  • a continued policy of cutting labour costs for low-wage jobs. Starting in 1993, successive conservative governments attempted to achieve this goal through a policy of social security contribution exemptions for employers. The Jospin government has extended this exemption scheme but has made it conditional on the successful negotiation of a company collective agreement on moving to the 35-hour working week. The report maintains that all companies should be covered by this exemption scheme.

Reactions

Employers' associations and trade unions have not, to date, issued official positions on the substance of the report. However, some initial comments have been expressed.

Denis Kessler, second in command at the MEDEF employers' confederation, stated that his organisation supported "most of the report's orientations". He particularly stressed the need for greater flexibility in the implementation of the 35-hour week legislation and broader social partner responsibility for employment issues.

On the trade union side, CFDT has reacted positively to the report. It considers that it is in step with the confederation's own approach, both in terms of goals (full employment), policies (multi-year programmes involving all parties) and tools (improved matching of labour supply and demand). CFTC laments a perceived lack of analysis on the qualitative aspects of employment, including the type of jobs created, the sectors in which they are created and their links to training schemes. The confederation focuses on the need to integrate employment policies into European Union social policy. CGT supports the goal of full employment and the fact that the report recommends policies affecting both supply and demand. However, it challenges labour cost reduction policies and demands that the notion of full employment be supplemented with safeguards on employment status. CGT-FO had already expressed its satisfaction at full employment being reinstated as a formal policy objective. It stresses the need for accelerated growth through increased purchasing power among wage-earners (employed, unemployed and retired) and a public investment drive, in particular in training. It is against cuts in employers' social security contributions and budget restraint policies.

Commentary

The report notably strikes a balance between the twin objectives of stimulating economic growth and of structurally reforming the labour market and social protection system. However, as demonstrated in a recent Financial Times headline - "France urged to bring in labour market reform" - informed observers have not missed what the report is really advocating, ie a shift in government policy. Economic growth-stimulating policies based on demand and a proactive job creation policy (reduction of working time, youth employment schemes etc) have worked well. These have created a situation where supply-side oriented policies are now a priority. The report is not advocating a U-turn in strategy but rather a shift in the policy mix. Jean Pisani-Ferry has identified the core policies that the government should implement, even though the current French political situation will make such decisions particularly difficult to take. (Jacques Freyssinet, IRES)

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