SMIC report calls for continued social contribution cuts on low-paid jobs

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An official report on France's statutory minimum wage, the SMIC, published in May 1999, advocates the continuation of the policy of reducing employers' social security contributions in respect of low-paid jobs, particularly in light of the current introduction of the statutory 35-hour working week.

On 4 May 1999, the Higher Council for Employment, Wages and Costs (Conseil supérieur de l'emploi,des revenus et des coûts, CSERC), a government agency headed by a group of six senior officials and three experts, published a report on France's statutory intersectoral minimum wage (salaire minimum interprofessionnel de croissance, SMIC).

The content of the report

Currently, approximately 2.2 million employees, or 11% of the total, are paid an hourly wage equal to the SMIC. Following the establishment of the SMIC in 1970, and major upgrades implemented in the 1970s and in 1981, it was possible to contain or even reduce pay disparities. However, since the mid-1980s this role has been progressively played down: the development of part-time working has led to a major increase in the proportion of workers with monthly pay either below or equal to the SMIC. This group now accounts for 18% of the workforce, up from 11% in 1983. Approximately one-third of minimum wage earners work part time. In order to avoid the development of this form of "working poverty," the report urges the introduction of a "graduated income supplement allowance" (allocation de compléments de ressources dégressive), comparable with the USA's "Earned Income Tax Credit" (EITC) - a refundable tax credit available to workers with low to moderate incomes.

The report also stresses the well-documented weakness of French pay bargaining, which has led to a situation whereby in 50% of sectors the industry-wide minimum wage rates negotiated by employers and trade unions fall short of the SMIC national minimum wage (FR9803196N).

However, the principal message in this report concerns the impact of the SMIC on employment levels. The report estimates that a 1% increase in the minimum wage would have only a minimal negative impact on overall employment, taking into account all categories of workers. However, such a rise could foster the development of capital-intensive production techniques, or those requiring higher levels of qualification, and thus lead to the loss of unskilled jobs. The report estimates that between 4,000 and 20,000 jobs could go. The authors consider that a strategy to provide incentives for the employment of low-skilled labour is warranted and as a result, advocate that the current policy of reducing employers' social security contributions in respect of the lowest-paid workers be continued. In particular, they consider that the aim of not increasing hourly wage costs should be reflected in the treatment of minimum wage earners during the current move to a 35-hour working week, following the June 1998 legislation on this issue (FR9806113F).

Subsidising hours reductions

The CSERC report comes at a time when the government is developing the second 35-hour week law (FR9904173F), which will include the details of government aid promised to companies to offset the impact on their paybill of the introduction of the 35-hour working week. A permanent annual subsidy of between FRF 4,000 and FRF 5,000 per worker has already been earmarked by the government. The cost of this subsidy, which should run to several tens of billions of FRF, is to be entirely borne by social security agencies. The Ministry for Employment is pitted against the Ministry of Finance over the amount of assistance to be given at the lowest wage level. Martine Aubry, the Minister for Employment and Solidarity, would like to see cuts in employers' social security contributions extended to include all workers earning less than twice the SMIC - up from the current 1.3 times the minimum wage - and proposes to levy a contribution based on value-added to fund these subsidies to companies. Dominique Strauss-Kahn, the Minister for the Economy and Finance wants to cap reductions in social security contributions at 1.4 or 1.5 times the SMIC in order entirely to offset the impact of the move to the 35-hour week, and is calling for an increase in the tax on polluting fuels set in place in 1998.

The CSERC, in producing a report in favour of reducing employers' social security contributions in respect of minimum wage earners, backs up the government's approach. However, the effectiveness of employment subsidies continues to be a subject of debate. In the same week as the report was published, a parliamentary report drafted by a Socialist member, Gérard Bapt, expressed serious reservations over the effectiveness of this government aid, while at the same time calling for employment-oriented changes to the base for employers' contributions. This debate has been going on in France for decades. In 1998, a report drafted at the request of the Prime Minister by Edmond Malinvaud, former director general of the National Statistical and Economic Research Institute (Institut National de la Statistique et des Etudes Economiques, INSEE), concluded that the widening of the policy of cutting social security contributions should be implemented according to the model currently championed by Martine Aubry (FR9809129F).

Commentary

From a wider perspective, the proposals outlined in the Higher Council for Employment, Wages and Costs' report raise still highly controversial issues. The creation of a "graduated income supplement allowance", designed to offset the impact of the increasing instability of the labour market could quite likely, by indirectly subsidising lower-skilled jobs, have the opposite effect and foster the development of unstable employment and low wages. Some trade unions have also stressed the limitations and negative impact on low wages of the policy of lower employers' social security contributions. Firstly, the cost of jobs created in this way now and in the long term is particularly high. An earlier CSERC report stated that these costs would exceed those for jobs in the civil service. Secondly, this strategy encourages the development of low-skilled, low-productivity jobs, whereas many believe that innovative, high-productivity jobs should be promoted so that the economy does not become snared in the "low-productivity trap".

However, it seems unlikely that the government will modify its current policy of cutting employers' social security contributions on lower pay, which is a continuation of the policy initiated by the 1993 conservative government. The implementation of the 35-hour week law should be an opportunity for the government to assert its policies on keeping wage costs in check, the aim being to implement the reform at no cost to businesses. Once again the current policy falls into step with those policies followed by successive governments over the past 15 years. (Pierre Concialdi, IRES).

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