France: unemployment, a deep-
rooted problem
France is plagued by three structural problems –
chronically high unemployment, eroding
competitiveness and fiscal imbalances – that are now
thoroughly entangled. Unemployment is undoubtedly the
longest standing and most deeply enrooted of the three.
Plus, the jobless rate is a key indicator of an economy’s
health, which is fairly poor as far as France is
concerned. Special attention is being paid to this
indicator, since it is almost the only gauge that will be
used to measure the economic recovery, as well as the
success of the government’s current supply-side policy.
In other words, there will be no true economic recovery
until the jobless rate begins to trend downwards.
This key indicator was given even more
importance when French president François Hollande,
in a speech in early September 2012, promised to
reverse the unemployment curve, representing the
number of jobseekers registered with the national
employment office (Pôle emploi), by September 2013.
Yet the curve was not reversed in 2013, nor even by
the end of 2014. Despite this setback, the president
pushed expectations to high levels after announcing
that he would not seek re-election in 2017 if
unemployment had not begun to fall by then. The most
likely scenario is that this unemployment decline will
have begun by then. But this does not mean that
France will have won the battle against mass
unemployment. That will take much longer to assess,
and to achieve this goal, more reforms will be needed
than those introduced so far.
Mass unemployment is no easy problem to solve,
otherwise we would not be fighting this plague so
assiduously, especially considering all the measures
that have been tried so far. In the first part of this article,
we will show why mass unemployment is such a hard
nut to crack, by looking at the scope of unemployment
and its numerous aspects. In part two, we will look at the
February 2015
Hélène Baudchon
different remedies currently being implemented, and in
part three, we will examine some of the solutions that
have not been tried yet. By reviewing the main
characteristics and reasons behind unemployment in
France, and by highlighting the measures that have
been introduced recently, our goal is to provide a better
understanding of the problem, the adequacy of current
solutions and to explore additional changes that are still
needed.
In brief, our overview of the troubles of the French
job market shows that since the mid-1980s the jobless
rate has fluctuated around 9% on average. This sole
figure reveals the extent of the problem. Unemployment
is chronically high. Among other characteristics, we note
the high level among youth, low-skilled workers and
seniors; the long duration of unemployment, and the
high level of underemployment, which is nearly double
the conventional unemployment rate. The French labour
market can also be characterised by its duality, with
precarious jobs on the one hand and stable employment
on the other. The mismatching of labour supply and
demand and imperfect wage adjustments with regard to
the French unemployment rate are two other indicators
of France’s malfunctioning labour market.
It is also important to note that these rigidity factors
are interdependent: precarious employment reduces the
chances for adequate training, and the lack of training is
a source of precariousness. The same can be said for
the relative inertia and high cost of labour and job
protection, notably for low skilled workers. All of this
shows the extent to which the numerous roots of
unemployment are deeply embedded and intertwined.
Clearly there is no single, miracle cure for the problem.
To resolve mass unemployment, it is not enough to
simply reduce the cost of labour, for example.
Unemployment is a systemic problem that requires a
systemic response.
Conjoncture 3
 The measures currently being implemented address
several aspects of the problem at the same time, in a
generally appropriate manner. They are designed to
inject greater flexicurity into the job market; to provide
better job insertion and employability of youth, low
skilled workers, seniors and the unemployed, notably
the long-term unemployed; and to strengthen incentives
to return to work and to foster growth in general.
Although progress is clearly being made, these
measures do not seem to be bold enough to come to
grips with mass unemployment. With its step-by-step
approach, the government is pursuing smooth reforms,
but they do not go deeply enough. What more can be
done to fight unemployment? One response is to push
existing reforms even further, notably in terms of
flexicurity, to reduce the duality of the job market. For
example, there is still ample room to develop the internal
flexibility of HR management; to lower the cost of
employment protection by reducing the legal insecurity
companies face during redundancy procedures; to
improve the performance of job training programmes;
and to optimise the unemployment insurance system.
Strengthening existing measures does not mean that
new measures cannot be introduced. Several solutions
are often mentioned but have not been tested yet,
notably the simplification of workforce thresholds, the
easing of the 35-hour workweek and a reform of the
minimum wage. We welcome current efforts to deal with
the first of these three politically and economically
sensitive issues.
Overview of the problem
Let us begin by making a broad assessment of the
situation, focusing on indicators that illustrate the depth
of the unemployment problem and the most frequently
identified shortcomings of the French labour market.
Unemployment by the numbers, major trends and
general characteristics
Since the mid-1980s, the unemployment rate in
France has fluctuated within a corridor ranging between
a low of 7% and a high of 10.5% of the labour force, with
an average for the period of roughly 9% 1 . The mid-
1980s was not chosen as a random benchmark: it
marks the emergence of mass unemployment in France.
To be more exact, the expression was first coined in the
February 2015
1970s during the two oil shocks and the rapid surge in
unemployment, which rose from 3% in early 1975 to 8%
ten years later (data for mainland France, for which
there is long-term historical series). Thereafter, the
jobless rate in mainland France never fell significantly
below 8% for any real length of time (see chart 1).
France: Unemployment rate
12 %
11
10
9
1985-2014 average
8
7
6
5 Mainland France France
4
3
2
1975 1980 1985 1990 1995 2000 2005 2010 2015
Chart 1 Source: INSEE
France: Structural unemployment rate
14 %
12
10
8
6 Observed unemployment
4
2
Structural unemployment
0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Chart 2 Source: European Commission (AMECO)
France is confronted with high, chronic
unemployment. It is experiencing what is known in
economics as hysteresis, which is to say a kind of
lagging effect or memory in which high levels of
unemployment tend to be perpetuated, increasing the
structural unemployment rate (see chart 2). More simply
put, unemployment breeds unemployment. This
contributes to the small gap between observed
unemployment and the estimated structural
unemployment rate. For the most part, French
unemployment seems to be structural by nature.
Yet the French unemployment rate has not only risen.
It has experienced two distinct phases of decline, from
late 1999 to mid-2001, and again just a few years later,
between 2006 and 2008. Both periods correspond to the
end of cyclical upturns after years of strong growth. In
Conjoncture 4
early 2008, the unemployment rate in mainland France
even fell below 7% for the first time since the early 1980s.
Yet the Great Recession of 2008-2009 drove
unemployment back up again, by about 2.5 points. The
brief economic rally of 2010 failed to make up for lost
ground. Unemployment declined by only half a point
before rising again as of mid-2011, and the French
economy has been mired in an extended phase of
stagnation ever since. In late 2014, unemployment
approached 10.5%, and it is highly likely that it will
continue to rise in 2015. It is hard to foresee a sharp
decline in unemployment anytime soon, and the return to
full employment, estimated at between 5% and 6%,
seems to be an even more distant prospect.
As to the main characteristics of French
unemployment, the most prominent one is that it is
concentrated primarily on youth, low-skilled workers and
seniors. The situation is particularly tough for those who
accumulate several of these attributes. The category of
youth with little or no qualifications has been particularly
hard hit 2. The unemployment rate in the 15-24 age group
reached 24% in 2013. This is similar to the eurozone
average (which has an upward bias due to the troubles in
the southern European countries), and is much higher than
the OECD average of 16%. Germany is in a whole different
league with a youth jobless rate of only 8% (only Japan has
a lower rate, at 7%) 3. The unemployment rate for youth
without a diploma was close to 14% in France in 2012 (near
the OECD average), but was only 5% for the most highly
educated segment. The unemployment rate for seniors (55-
64 age group) was 7% in France in 2013, compared to an
OECD average of 5.6%.
We can also see that since 2008, the unemployment
rate for the over 49 age group has increased as much as
total unemployment in mainland France. During past
recessions, in 1974-1975 and in 1993, unemployment did
not rise as quickly in this age group as the total
unemployment rate. This age group is less resilient today
than in the past in part because of the severity of the 2008-
2009 recession and the protracted period of stagnation that
has followed. Yet it is also due to the pension reform of
2010, which resulted in seniors remaining in the active
population for a longer period, be they employed or
unemployed.
As a result of pensions’ reforms, the employment
rate 4 for the 55-64 age group increased significantly,
from 39% in 2009 to 47% in 2014. This was the
intended effect, and it is the positive trend indicated in
chart 3. The employment rate is therefore gradually
nearing the European average of 54%, though it still
February 2015
lags far behind the German benchmark of 67%. Yet this
improvement must be kept in perspective, given the
concomitant increase in the jobless rate for the over 49
age group, and the decline in the employment rate for
youth (28% in 2014 down from 31% in 2009). Here
again, the crisis is partly to blame: young workers
lacking experience are more sensitive to cyclical
downturns than other age groups. Moreover, in a
sluggish job market with only a limited number of job
creations, the problems of youth insertion in the job
market are only compounded by the extended working
years of seniors, which means that fewer posts open up,
especially when job profile correspond to both youth and
seniors.
France: one positive trend and three negative ones
Employment and jobless rates Employment and jobless rates
60
for the 50-64 age group (%)
10 35
for the 15-24 age group (%)
30
Employment Employment
Unemployment Unemployment
25
55 5 30
20
50 0 25 15
2003 2007 2011 2015 2003 2007 2011 2015
Chart 3 Source: INSEE
Another key characteristic of French unemployment
is the high number of long-term unemployed.
Unemployment is considered to be long term when an
individual has been without any work for a period of
more than 12 consecutive months. In France, the
percentage of long-term unemployed is now very high
at 40%, which is 5 points higher than the OECD
average. According to statistics from Pôle emploi, the
category of job seekers who have not worked for more
than a year as a share of total job seekers was roughly
the same, at 43% at year-end 2014. This figure can be
broken down as follows: 20% have been registered for
1 to 2 years, 10% for 2-3 years and 13% for more than
three years. This is the highest level since 1996, when
the series began. The sharp increase in the
percentage of long-term unemployed since 2009 is
even more alarming considering that is was then 30%.
Moreover, it has been accompanied by a major
extension in the average duration of unemployment:
from 391 days in 2009 to a record high of 538 days in
November 2014.
Conjoncture 5
 Each type of job seeker has its own specific category
Box 1: Definitions of unemployment Number of
The unemployment rate expresses the number of unemployed Category registered Requirements Characteristics
individuals as a percentage of the labour force, which in turn is defined job-seekers
as the sum of actively working individuals age 15 and over and the Did not work for
A 3,488,300
unemployed. According to the definition of the International Labour the past month
Office (ILO), individuals are considered to be unemployed if they are Performed short-
members of the active population age 15 and over and meet the Must be term reduced work
B 672,300
following three criteria: to be out of work, available to work (can begin actively (i.e. no more than
working within the next two weeks) and actively seeking work (having seeking 78 hours)
carried out specific procedures during the past four weeks). The work Performed long-
INSEE uses ILO standards. term reduced work
C 1,015,700
(i.e. more than 78
France: number of unemployed, mainland France hours)
Not working
3600 Thousands (due to training,
D 280,000
an internship or
3400 Category A jobseekers Not required
illness)
3200 to actively
Number of unemployed (INSEE/ILO) Employed (via a
3000 seek work
subsidised job
2800 E 384,400
contract, for
2600 example)
2400 ABC 5,176,300
2200 ABCDE 5,840,700
2000 Table Source: DARES-Pôle Emploi,
1800 November 2014 data for mainland France
1998 2000 2002 2004 2006 2008 2010 2012 2014
Chart A Sources: INSEE/ILO, Pôle emploi We would like to highlight one final characteristic of
The ILO definition of unemployment is not exactly the same as the French unemployment: the scope of the problem arising
concept of “category A jobseekers” used by the national employment through underemployment and the “unemployment halo”
office (Pôle Emploi), which leads to significant differences in popularised by Jacques Freyssinet 6 . Unemployment
unemployment trends (see chart A). The number of jobseekers at the
end of the month (DEFM) is broken down into five categories depending cannot be summarised as simply “not having work”. It
on whether the individual worked during the month and carried out corresponds to a precise definition (see box 1). Yet,
specific job hunting procedures (see table). Category A comprises those there are various forms of inactivity, and a lot more
who have not worked at all during the past month and are actively people can be considered “unemployed” than those
seeking work. Jobseekers registered in this category are not necessarily
considered unemployed unless they are available to work immediately measured by the statistics of the national employment
and/or if they are not actively seeking work according to the ILO criteria. office or by the INSEE’s conventional unemployment
The analysis of unemployment is not facilitated by the variety of rate.
statistics, which continue to fuel debates on the “right” measure for Various economic crises and transformations have
unemployment 5. Although changes of methodology are necessary, they
do not help matters either. For instance, the overhaul of the INSEE job helped create intermediary situations with overlapping
survey in early 2014 led to a notable downward shift in the boundaries between unemployment, employment and
unemployment rate, which averaged about 0.4 points (see chart B). inactivity. In chart 4, zone 2 corresponds to the different
France: new unemployment rate vs former forms of underemployment (such as involuntary part-
time workers, partial unemployment and very short-term
12 % contracts). Zone 3 covers people who are in mixed
New methodology situations of both inactivity and unemployment. This
11 Old methodology includes people who want to work more but are not
counted as unemployed: either they have been
10
exempted from looking for work since their chances of
9 finding a job again are so small, or else they have
become discouraged and have given up on job hunting.
8
Zone 1 is comprised of individuals who have decided to
7 work less. Lastly, zone 4 is comprised of clandestine
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 workers and undeclared employees, who are not taken
Chart B Source: INSEE into account in the other three zones.

February 2015 Conjoncture 6

The unemployment halo Compared levels of unemployment rates

13 %
Germany France Eurozone
12
Employment 11
1 10
9
2 4 Inactivity 8
3 7
6
Unemployment
5
4
1991 1995 1999 2003 2007 2011 2015
Chart 4 Chart 5 Source: Eurostat

Underemployment, as defined and measured by
the INSEE, comprises people working part time who
want to work more, as well as those involuntarily
working less than they usually do (notably due to
partial unemployment). The unemployment halo is
comprised of people who could be considered as
unemployed but who are not counted as such
because they do not fulfil all of the criteria of the
International Labour Office (ILO), i.e. to be
unemployed, actively seeking work and available to
work. Some might not be available to work
temporarily due to family or personal reasons, or
might not be seeking work (notably seniors who think
they will no longer be able to find a job).
In mainland France at the end of 2014, the INSEE
counted 1.7 million underemployed persons (vs.
1.3 million ten years earlier) and 1.4 million inactive
persons in the unemployment halo (vs. 1.2 million ten
years earlier). These figures must be added to and
First, growth is much weaker in France. Between 2010
and 2014, the average annual growth rate was twice as
high in Germany (2%) than in France (1%). In France, this
pace of growth is too sluggish to bring down the
unemployment rate. This is especially true if we narrow the
observation period to 2012-2014, when average annual
growth was only 0.4%, compared to 0.7% in Germany.
Recent trends in French unemployment can be retraced
fairly accurately using a simple version of the Okun law 7,
which links unemployment to growth according to the
following equation: ∆𝑢𝑢 = 0.5 − 0.4∆𝑦𝑦, where ∆𝑢𝑢 is the
change in the unemployment rate over a year, and ∆𝑦𝑦 is
the year-on-year growth rate (see chart 6).
An illustration of the Okun law in France
12 Unemployment rate, %
11
Estimated Observed (mainland France)

compared with the 2.8 million unemployed in the 10

strict sense of the term, and the total looked at in 9

relation to a labour force of about 28 million. 8
Measured using this looser definition, the
unemployment rate in France comes to 21%, which is 7

more or less double the conventional unemployment 6

rate. 1999 2002 2005 2008 2011 2014
Chart 6 Source: INSEE

Overview of the dysfunctions, obstacles, imperfections
and other problems of the French labour market
To answer the question “Why does France suffer
from such high unemployment?”, we can grasp the first
notions of a response by asking “Why does Germany
benefit from such low unemployment today?” What are
the broad traits that distinguish the two job markets
and explain the wide gap in their unemployment rates
since 2009 (see chart 5)?
Changes in the labour force also play a role. The
labour force in France has grown nearly twice as fast as
its German counterpart, at an annual average of 0.6%
and 0.3%, respectively, for the period 2010 to 2014.
Although potentially a favourable trend, under current
circumstances the demographic momentum in France
strains unemployment statistics, because once again
growth is too weak to employ all of the new entrants to
the job market.

February 2015 Conjoncture 7

 Lastly, and most importantly, there is the functioning
of the job market. Briefly summarised, Germany is
benefiting from the Hartz reforms introduced between
2003 and 2005 8, and from the intensive use of “internal
flexibility” by German companies, which is much less
common in France. Internal flexibility includes partial
unemployment, “working time savings accounts” and
employment & competitiveness pacts. Compared to
Germany, the French labour market looks much more
rigid.
This rigidity encompasses several factors that go
far beyond the question of the mandatory 35-hour
workweek. They include the duality of the labour
market, i.e. the strong segmentation between regular
open-ended job contracts (CDI) and short fixed-term
contracts (CDD); the relative inertia of real wages,
notably due to the minimum wage indexation system;
a conflictual social dialogue; the weight and
complexity of labour laws and red tape; workforce
thresholds; and the mismatching of labour supply and
demand. In the following pages, we will review some
of these factors of rigidity, starting with the duality of
the labour market.
This duality reflects the segmentation of the French
labour market into two groups:
- “insiders” with open-ended CDI job contracts, who
enjoy stable, protected jobs and little exposure to
unemployment. They tend to have more skills and
qualifications, which a priori means they can find a new
job rather easily;
- “outsiders” with fixed-term CDD job contracts,
including temporary work for employment agencies,
involuntary part-time work and other short-term work
schemes. Employment is precarious. Workers in this
category tend to have little or no qualifications and to have
few opportunities for training. They are thus exposed to
protracted periods of unemployment or recurrent periods of
unemployment alternating with short periods of employment.

Employment protection
(scale of 0 to 6: the higher the number, the stricter the employment protection for each case)

Regular contracts Temporary contracts Collective dismissals

12 12

10 10

4.1
8 8
3.4 3.4 3.8

3.6 3.8
6 3.1 6
3.6
2.5
3.6 2.5
4 3.6 3.6 3.3 4
2.0 1.1 2.6 2.0 1.4
0.8
2.9 2.9
2 2
2.9 2.9
2.7 2.9 2.8 2.5 2.7
2.3 2.4 0.3 0.4 2.4 2.0 2.6
0.3 0.3 1.0 1.0
0 0.3 0,3. 0
2000 2013 2000 2013 2000 2013 2000 2013 2000 2013 2000 2013 2000 2013
France USA UK Germany Spain Italy Sweden
Chart 7 Source: OECD

According to the employment protection indicator
compiled by the OECD 9 , the degree of protection for
open-ended CDI job contracts is relative high in France
(see chart 7). Yet it is not the highest of the countries
under review. Plus employment protection has been
trending downwards (in 2009, although the decline only
partially erases the gains in 2003). Moreover, the next
trend is likely to be downwards as well thanks to flexicurity
measures introduced in the job securitisation agreement
of January 2013 (see below). Above all, there is still
ongoing debate over the correlation between employment
protection and the level of unemployment: there is no
obvious empirical correlation nor a proven causal link
(Blanchard and Tirole, 2003).
The French problem probably arises more from the
stark contrast between the two groups, with precarious
employment on the one hand, and stable jobs on the
other. This can be seen in the way these job contracts
are terminated. Termination is an inherent part of fixed-
term CDD contracts, whereas exiting an open-ended
CDI contract implies a “rupture”. Any dismissals must be
justified by a “real, serious” cause. This is not

February 2015 Conjoncture 8

necessarily obvious and is open to dispute, which can
be costly. The high cost of dismissing workers is due
less to the “direct” payment of compensation than to the
“indirect” costs of lengthy, drawn out procedures and red
tape 10. It is worth nothing, however, that according to a
DARES report (2015), it is not unusual for regular, open-
ended CDI contracts to be terminated within the first
twelve months. In 2011, 36.1% of CDIs were terminated
before their first anniversary (vs. 33.6% in 2007). The
main reason given was resignation by the employee,
followed by the expiration of the probation period.
The contrast between the two groups is particularly
stark because it is hard to shift from a fixed-term
contract to a more secure open-ended one. The CDD to
CDI transformation rate was only about ten percent 11.
For the most part, this is probably due to a big threshold
effect, i.e. the increase in employment protection costs
when transferring from a CDD to a CDI. In addition, the
first group serves as an adjustment variable for the job
market during the different phases of the business cycle.
The flexibility of short-term contracts is in high demand
despite the high level of employment protection integrated
in these contracts (which is one of the bigger paradoxes),
as illustrated by the growing share of CDD contracts in
new hiring (84% in mid-2014, vs. 68% in 2000) and as a
share of total employment (8.5% in 2012 vs. 4% in 1982)
(see chart 8). The boom in these contracts can also be
attributed to a series of job policy reforms, which
deliberately sought to make CDDs more attractive. Their
flexibility helps offset the fixity of CDI contracts, which
continue to predominate and have held rather steady over
the years, at 77% of the work force. Instead, the surge in
short-term contracts (CDD and temporary employment
services) has come at the expense of non-payroll
employees, whose share of total employment has
declined.
Specific types of employment
in % of total employment (mainland France)
In 1982 In 2012
4.0 0.5 8.5
0.8 11.5
17.9
76.9
Fixed-term contracts Temp work Apprentices Open-ended contracts Non-salaried
Chart 8
The end result is a labour market that does not
facilitate job insertion and that is paradoxically both rigid
(via open-ended CDI contracts) and flexible (via fixed-
term contracts). The much-needed flexibility of CDDs is
exacerbated by the lack of flexibility of the vast majority
of job contracts. CDDs are also a source of
precariousness that makes lasting job market insertion
difficult to achieve. The low job loss and unemployment
exit rates 12 illustrate the duality of the labour market in
complementary ways, between those with secure jobs
and those on unemployment: although it is not easy to
lose a job in France, it is harder to exit unemployment.
This lack of fluidity contributes to the French labour
market’s low capacity to absorb shocks as well as to the
development of unemployment.
The co-existence of high unemployment and job
vacancies is also problematic. Although there is nothing
unusual about job vacancies, what is abnormal is when
their number is chronically high. In France, the big
debate is over the size of the problem (estimates range
widely from 100,000 to 300,000, and even 1 million 13),
not whether it exists.
This situation can be illustrated by the Beveridge
curve. It traces the inverse relationship between the
unemployment rate (x axis) and the job vacancy rate (y
axis). A high vacancy rate and a low unemployment rate
are signs of a healthy job market. Inversely, when job
market conditions deteriorate, high unemployment goes
hand in hand with a low job vacancy rate. The more or
less smooth functioning of the labour market (in terms of
the matching of labour supply and demand) can be
measured by the position on the curve in relation to the
two axes. A rightward shift is a bad sign since it
indicates a higher unemployment rate for the same
percentage of job vacancies, which signals a
mismatching of labour supply and demand and
presumably a higher structural unemployment rate.
Lacking a long data series on the job vacancy rate to
create a true Beveridge curve for France, we have used a
proxy based on the percentage of companies reporting
hiring difficulties (taken from the INSEE quarterly business
2.0
1.5
confidence survey). The resulting curve has clearly shifted
to the right over time, and has also steepened (see charts
9 and 10). This shift can be attributed to several factors:
the low geographic mobility of workers in general and the
unemployed in particular 14; their employability (notably for
76.6
the long-term unemployed) and their qualifications and
training, which are not or no longer suitable. We must also
look at the cost of labour, its rigidity and the excessive
Source: INSEE cost of low skilled labour.
February 2015 Conjoncture 9
An illustration of the Beveridge curve for France Moreover, the slope has distinctly flattened since the
from 1975 to the end of the 80s... mid-1990s (see charts 13 and 14). When wage growth
is adjusted for inflation, the correlation seems to be even
Share of companies reporting

60
50 looser, verging on the horizontal (see chart 15): real
hiring problems, %

40
wages seem to be virtually insensitive to job market
conditions. This can be attributed to the downside
resilience of nominal wage growth and its incomplete
30 1988
1976 1980
20 adjustment to slowing inflation (see chart 16).
10
1985
0 France: Phillips curve over the long-term
3 4 5 6 7 8 9 10 11 (1986-2014)
Unemployment rate, mainland France, %

Nominal monthly wage growth,

Chart 9 Source: INSEE 5.5 6

5.0 5

4.5

y-o-y % change
5

... and from the end of the 80s to nowadays 4.0 4

3.5 4

3.0 3

2000
Share of companies reporting

60 2.5 3

2.0 2

50 1990 1.5
hiring problems, %

2008 2

40 1.0 1

7 8 9 10 11 12 13
30
1989 2014 Unemployment rate, %
20 Chart 12 Source: INSEE
1997
10 2010
1994
0 France: a rather steep curve through the mid-90s...
3 4 5 6 7 8 9 10 11
Unemployment rate, mainland France %
Nominal monthly wage growth,

Chart 10 Source: INSEE 5.5 5,5

5.0 5,0

4.5 4,5
y-o-y % change

4.0 4,0

France: inverse relationship between the unemployment

3.5 3,5

rate & nominal growth of the monthly base wage 3.0 3,0

y-o-y % change % 2.5 2,5

6% Monthly base wage

5 2.0 2,0

Unemployment rate, mainland France (inverted scale) 1.5 1,5

5% 6 1.0 1,0
6,5 7,0 7,5 8,0 8,5 9,0 9,5 10,0 10,5

7 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5

4% Unemployment rate, mainland France, %
8 (Q1 1986 - Q4 1994)
3%
9 Chart 13 Source: INSEE
2%
10
1% 11 France: ...a rather flat curve since then
0% 12
1986 1990 1994 1998 2002 2006 2010 2014
5.5
Nominal monthly wage growth,

5,5

Chart 11 Source: INSEE

5.0 5,0

4.5 4,5
y-o-y % change

4.0
This brings us to the third characteristic of the
4,0

3.5 3,5

malfunctioning of the French labour market: the 3.0 3,0

imperfect or non-existent adjustment of wages to 2.5 2,5

2.0
the unemployment rate. To be more precise, we can
2,0

1.5 1,5

see the expected inverse relationship, as described by 1.0

6.5
1,0
6,5 7,0 7,5 8,0 8,5 9,0

7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5

9,5 10,0 10,5

the original Phillips curve, between the unemployment Unemployment rate, mainland France, %
rate and the nominal increase in the monthly base (Q1 1995 - Q3 2014)
wage 15, but the slope is feeble (see charts 11 and 12). Chart 14 Source: INSEE

February 2015 Conjoncture 10

France: loose ties between the unemployment rate & seem, considering the squeeze on corporate margins
real growth of the monthly base wage and the high unemployment rate, which to the contrary
2.5
2,5
encourages wage moderation.
Real monthly wage growth,

The authors cite other explanatory factors: “the way

2.0
minimum wages are defined (national minimum wage
2,0
y-o-y % change

1.5
1,5 and sector agreements) and the financing of
employment protection”, which encumber and drive up
1.0
wage costs in France, independently of the cyclical
1,0

0.5
0,5
0.0
0,0
7 8 9 10
Unemployment rate, % (1986-2014)
Chart 15
France: downward resistance and incomplete
adjustment of wages to headline inflation
5% y-o-y % change
4% Inflation Nominal monthly base wage
3%
2%
1%
0%
-1%
1991 1995 1999 2003
Chart 16
Why aren’t wages playing more of a role as a labour
market adjustment variable? Shouldn’t they slow more
during a period of high unemployment? Following the
Enderlein-Pisany-Ferry (2014) report, several possible
explanations for this rigidity come to mind: mandatory
annual wage negotiations at the company level, which
put upward pressure on wages even when there is no
revenue growth to be distributed; the low unemployment
rate for the most qualified workers, which drives up their
wages; and the partial indexation of the minimum wage
to the average hourly wage, which does not take into
account productivity trends.
According to research by the Conseil d’Analyse
Economique (2013), wage momentum in France is also
shaped by companies who are reluctant to change their
wage practices, even during a crisis. “To preserve
employee motivation and the social climate – two key
determinants of productivity – companies prefer to scale
back employment rather than wages,” thereby protecting
insiders, i.e. those with jobs, to the detriment of
outsiders, i.e. those outside of the job market. Using the
CICE job competitiveness tax credit to raise wages
follows the same logic, as paradoxical as that may
environment. Recently, a “composition effect” has also
added upward pressure: job losses mainly affect the
11 12 13 least qualified and thus lowest paid workers, and by
leaving the labour pool they help raise the average
Source: INSEE
wage rate.
When low inflation is added to these various factors,
real wages, and thus the overall cost of labour, tend to
rise faster than productivity gains (which are fairly
lacklustre as well). The increase in real wages is
certainly good news for household purchasing power,
and a support factor for consumption. For employers,
however, it is more problematic since they must deal
with higher real unit labour costs, which discourages
labour demand, leads to less hiring, strains growth and
maintains unemployment.
While there is not much debate over the duality of
2007 2011 2015 the labour market and the lack of wage adjustments to
Source: INSEE unemployment, discussions become much more heated
and less conclusive when it comes to the role of three
other characteristics of the French labour market: the
35-hour workweek, relatively generous unemployment
benefits and workforce thresholds. We provide a short
summary of the problem of workforce thresholds in the
box below and discuss the impact of the 35-hour
workweek in the appendix. In the third part of this article,
we will look at unemployment insurance from the angle
of possible reform ideas.
Box 2: Workforce thresholds, a real but minor problem
In early October 2014, employers and employees’ unions (the so-
called social partners) started negotiations on modernising the rules
for social dialogue and employee representation. Having failed to
reach an agreement before the mid-December deadline, the talks
were extended into January 2015, but in vain. As a result, the
government has stepped in again and will propose a new reform
project.
There is fierce debate and dissension over workforce thresholds,
the levels at which companies are subject to a series of fiscal and
social obligations, such as better union representation for employees.
The multiplicity and complexity of these official, time-consuming rules
are deplored, as well as their supposedly negative impact on business
development and employment. The magic numbers are 10, 20 and 50
employees. Below we have listed some of the obligations tied to these
thresholds:

February 2015 Conjoncture 11

 - the transition from 9 to 10 employees obliges companies to
switch to the payment of social security contributions on a monthly
basis, to offer transport subsidies and to set aside a higher percentage
of the total payroll for vocational training, (1.05% instead of 0.55%);
- the transition from 10 to 11 employees obliges companies to
pay a minimum compensation of 6 months of wages in case of
dismissal without real or serious grounds and to organise elections for
an employee representative (without obligation of results). The
company is no longer fully exempt from paying charges on payments
to apprentices;
- the transition from 19 to 20 employees obliges companies to
enact bylaws, hire a certain percentage of employees with disabilities,
increase funds set aside for vocational training to 1.6% of the total
payroll 16 , and establish mandatory compensatory rest for overtime
work;
- the transition from 49 to 50 employees obliges companies to set
up a hygiene and safety committee (CHSCT), a works council
financed by the employer, and an employee profit-sharing plan; to
implement an employment safeguard plan in case more than 10
employees are dismissed in less than 30 days; to hold annual
negotiations on wages, working hours, employee savings plans and
professional equality; and to make monthly declarations of labour
migration to the ministry of labour.
By looking simply at the number of companies on the verge of
these thresholds, we can see a net discontinuity (see chart). But
according to INSEE research (2011) and the calculations of F. Gourio
and N. Roys (2014), the impact of these workforce thresholds on the
size of companies and on employment, though statistically significant,
is relatively small. As minor as the benefits may be, however, it would
still be worth simplifying and easing these thresholds and improving
the social dialogue. Such a reform would have a positive symbolic
impact.
France: number of companies (thousands)
by number of employees
55.4
42.3
36.9
34.5
18.3
13.6 12.6
10.5
7.6 6.9 7.0 7.2
4.3 3.5 3.3
3.2
6 7 8 9 10 11 12 13 16 17 18 19 20 21 22 23
Chart C Sources: INSEE, Les Echos
A panoply of remedies already
tested or currently underway
In 1993, François Mitterrand declared that “in the fight
against unemployment, we’ve tried everything,” admitting at
the time just how difficult it is to solve mass unemployment.
Just over 20 years later, the problem remains intact, despite
a long list of measures implemented to fight unemployment
and foster job-rich growth. The most notable measures are:
employers’ contributions cuts on low wages; subsidised job
contracts; the development of short-term contracts;
incentives to leave the workforce (early retirement), to
return to work (EITC-type tax credit and RSA minimum
income allowance) and to extend working life (postponing
the age of retirement, eliminating the dispensation to search
for work for the unemployed over age 55), and the
reduction in the workweek. More recently, two innovative
mechanisms have been introduced to facilitate the
functioning of the labour market, which are very popular: 1)
the creation of a self-employed status (auto-entrepreneur)
as part of the Economy Modernisation Law (LME) of
August 2008; and 2) the termination of job contracts by
mutual consent (rupture conventionnelle 17), as part of the
June 2008 law on modernising the labour market.
Obviously there is no one miracle cure. But why haven’t
these attempts met with greater success? The reasons are
numerous. It is beyond the scope of this article to explore
them in detail, but one reason is the sequential nature of
the approach used to fight unemployment, one small step
after another. The very large number of job policy players 18
and the predominance given to the obligation of means
over results, may also have hurt the effectiveness of these
measures. This piecemeal approach to measures and
participants brings us back to the question of how difficult it
is to make the right diagnosis and to apply the most suitable
policy. The response will not be the same, depending on
whether France is suffering from classic unemployment (due
to a labour supply mismatch) or Keynesian unemployment
(due to insufficient demand). Yet this diagnosis is not only
hard to make, it varies over time. Today, it is the first
interpretation that prevails, but that was not always the case.
There is no unanimity over the current policy line either.
Faced with the unemployment problems identified in the
first part of this article, François Hollande has deployed a
1.2 1.2 1.5 1.6 0.6 0.5 0.5 0.5
“toolbox” that tries to be as complete as possible, including
46 47 48 49 50 51 52 53
measures aiming at employment and unemployment for both
youth (particularly those with little or no skills) and seniors, via
emplois d’avenir and contrats de génération subsidised job
contracts and youth guarantees. Other measures aim to
reduce job market rigidity through the employment security
agreement; to boost sluggish growth and low
competitiveness through the national pact for growth,
competitiveness and employment (PCCE), which was
strengthened by the Responsibility and Solidarity Pact and
the proposed Macron draft law for growth and business; to
overhaul the training system to better optimise job training
resources; and to create incentives to return to work with
the new unemployment insurance agreement. In addition to
February 2015 Conjoncture 12
these innovative measures, the toolbox also offers a certain
comprehensive approach. Yet the effectiveness of most of
these tools seem rather limited, and thus insufficient for all
that is at stake.
Job policy does not abandon the classic solution of
subsidised job contracts
Like his predecessors, François Hollande has resorted
to subsidised job contracts, but he has added his own
personal touch by creating two new programmes.
The first, jobs for the future (emplois d’avenir),
targets job insertion for youth in difficult situations through
the creation of 150,000 subsidised job contracts. Decreed
in October 2012, the law reached its goal by September
2014. Given the presumed success of the programme, it
was extended into 2015. These job contracts are reserved
for youth in the 16-25 age group with little or no
qualifications living in disadvantaged areas. Job positions
are available essentially in the public sector, in activities
with “a proven social benefit and sustainable recruitment
prospects”. To boost the programme, the conditions were
eased for creating more jobs in the private sector. The
contracts are fixed-term CDD lasting at least a year and a
maximum of three years, or open-ended CDI contracts
paying the minimum wage. The state pays 75% of wages
for three years (35% in the private sector). This
programme offers several innovations and advantages: its
target group, open-ended contracts and the accent placed
on training new recruits. As a result, this programme is
less exposed to the criticism of traditional subsidised job
contracts and should serve as a less flimsy springboard
towards the job market.
The generation contract (contrat de generation),
enacted in March 2013, is the government’s second star
measure for handling the social aspects of
unemployment. It has two goals: to hire young people
under age 26 via opened-ended CDI contracts and to
match them with seniors over age 57, preserving their
employment so they can play a tutoring role. One interest
of this programme resides in the transmission of
knowledge. The scheme differs depending on whether the
company employs more than 300 employees. Small and
mid-sized companies with less than 300 employees
benefit from a reduction in charges of EUR4000 a year,
distributed in two halves for each member of the
intergenerational couple. Aid is granted over a 3-year
period for the young worker and up to the senior’s
retirement age. On 1 September 2014, the amount of
government subsidies was increased to EUR8000 when
February 2015
both a young person and a senior were recruited at the
same time. To avoid any windfall effects, companies are
not eligible for subsidies if they have reported any layoffs
for economic reasons in the six months prior to the new
recruitment. Large companies with more than 300
employees do not benefit from reduced charges, but must
set recruitment targets or pay a penalty. The government
intends to create 500,000 generation contracts by 2017,
an ambitious target that is far from being reached
according to the most recently available tally: only about
30,000 contracts had been signed as of October 2014,
with a 2015 target of 40,000 contracts. This programme’s
poor performance is largely due to the economic slump.
Job policy also focuses on flexicurity…
The Employment Security Agreement or ANI was
reached between the social partners in January 2013 and
enacted into law on 14 June 2013. It fits within the
category of structural reforms. This agreement is
important for both its form and content. First, it was the
fruit of compromise and social dialogue, which is perfectly
in keeping with the Larcher law of 2007. This law marked
the comeback of the tri-party social regulation of
employment, by giving new meaning and importance to
social dialogue: social partners were placed at the centre
of the negotiating table alongside the state 19. Second, by
extending the 25 June 2008 law on the “modernisation of
the job market”, the ANI of January 2013 defines the
contours of French-style flexicurity.
For employees, the agreement contains diverse
measures to promote job security: generalisation of
complementary healthcare, reframing of part-time work,
rechargeable rights to unemployment insurance, personal
training accounts, and the right to a period of secured
voluntary mobility (see below for more information on these
last three measures). It also introduces a surcharge applied
to fixed-term CDD contracts of less than 3 months,
increasing unemployment insurance contributions (from 4%
to 7% for CDD of less than 1 month and to 5.5% for 1- to 3-
month contracts) 20. In addition to this surcharge, charges
are exonerated for the first three months for young
individuals under age 26 hired under an open-ended CDI
contract. The measure seeks to discourage abuse and to
encourage companies to recruit more individuals using CDI
contracts. It is hard to obtain this result in the current
environment of economic stagnation, and given the
tenuous prospects of recovery. Moreover, fixed-term
contracts of less than 3 months cannot be substituted for
open-ended CDI contracts.
Conjoncture 13
 For companies, the main flexibility measures are: the
simplification of the partial unemployment system and “job
preservation” plans. These latter mark real progress.
Companies facing “severe economic troubles” would be
able to maintain employees by negotiating for a maximum
of 2 years the adaptation of working hours and/or
compensation. The simplification of group redundancy
procedures and the reduction in legal risks are also
expected to facilitate hiring (it is easier to hire if it is also
easy to lay off workers).
This agreement reduces certain rigidities in the French
labour market. But the positive effects are expected to be
small. The problem of labour market duality and
segmentation by job contract is barely addressed. The
agreement adds even more complexity to the labour code
and raises labour cost (via the surcharge on fixed-term
CDD contracts of less than 3 months and the generalisation
of complementary healthcare). The flexibility provided by
job preservation agreements is highly regulated and
defensive by nature. For the moment, the scheme has not
been very successful.
Priority on training
Qualifications have been shown to be a key factor in job
insertion and preservation. Consequently, numerous
measures have been devoted to improving skills. The pact for
growth, competitiveness and employment (PCCE) proposes
to strengthen the ties been schools and companies, notably
as part of technical and professional curriculums; the
development of apprenticeships; greater international mobility
for students; the creation of a new public service for career
orientation and training; and personal training accounts
(compte personnel de formation). Personal training accounts,
introduced by the ANI employment security agreement of
January 2013, are a new right for employees. They are
universal, can be activated at any time during one’s career,
are open to the employed and unemployed and can be
transferred when changing jobs.
The ANI of January 2013 also introduces a period of
secured voluntary mobility (mobilité volontaire sécurisée)
that enables employees to prepare for a possible career
change by entering a fixed-term CDD contract with another
company, with the consent of his or her initial employer. At
the end of the fixed-term contract, the employee has the
option to resign from the initial post or to return to the initial
company with at least the same wages. The ANI of January
2013 also seeks to encourage greater use of other effective
means of improving employability based on career support
and training, including different levels of supervision for
February 2015
jobseekers by the national employment office 21, job security
contracts (contrat de sécurisation professionnelle, CSP) 22,
and operational preparation for employment (préparation
opérationnelle à l’emploi, POE) 23.
As to targeting training efforts to a specific public, a
training plan for the unemployed was announced in
summer 2013 that specifically promotes jobs labelled as
vacant. At least 30,000 jobseekers are thought to have
benefited from this programme by the end of 2013 and
another 100,000 in 2014. The Ministry of Labour expressed
its satisfaction with the measure. Another programme for
the long-term unemployed is the “path to job insertion
through economic activity”, which the government would
like to support. Participants are placed in professional
situations and the companies train them directly.
Lastly, there is the new youth guarantees (garantie
jeunes), which targets individuals in the 18-25 age group
who are Not in Education, Employment or Training
(NEET). This particular group is very large (nearly 2
million youth, or 17% of the age group under
consideration 24) and did not benefit from the least aid in
the past. This shows the full interest of the measure,
which is part of the multiannual plan to fight poverty and
promote social inclusion, adopted in January 2013. It
comes on top of the emplois d’avenir and contrats de
génération government subsidised job contracts geared
specifically to youth. This 1-year enhanced support
programme promotes employment or training by having
participants work closely with local missions 25 . They
receive a monthly allowance of about EUR450. This
system fits within the European youth guarantee scheme.
Rolled out in November 2013, it was initially tested in
about ten regions and is now being generalised. At the
Social Summit in July 2014, Manuel Valls announced a
target of 50,000 beneficiaries of youth guarantees in
2015, and 100,000 in 2017.
The vocational training reform approved in
December 2013 and enacted in March 2014 generally aims
to achieve a better allocation of the enormous training
budget (more than EUR30bn), so that it benefits those who
are most in need, namely the unemployed. Currently this is
not the case, since the system benefits active employees
most, especially those already with the highest
qualifications 26. Social partners have both expressed their
satisfaction with this reform, which is a good thing in itself.
The reform seeks to increase the responsibility of each of
the system’s stakeholders, and to simplify funding. This
should make vocational training more effective. The reform
also officially introduces personal training accounts, effective
5 January 2015, which is a significant step forward.
Conjoncture 14
 The government also lent its support, albeit in a
confusing manner, to apprenticeships, which are known
to be an efficient means of job insertion for young people,
even though the French system is underdeveloped and
functions poorly 27 . Faced with a sudden decline in the
number of new apprenticeships (-8% in 2013 28), several
measures were announced at the Social Summit of July
2014 and the Apprenticeship Congress of September
2014, including the unblocking of new funding (up to
EUR200 million as of 2015) and a new hiring bonus. The
government reaffirmed its target of 500,000
apprenticeships in 2017 (vs. 365,000 in September 2014).
Boosting the return to work
Social partners had more trouble reaching a deal
during the renegotiation of the unemployment insurance
agreement in the first months of 2014. The challenge was
to reduce the UNEDIC unemployment insurance deficit,
which neared an estimated EUR4bn in 2014 29 (the same
level as in 2013), without increasing unemployment
insurance contributions (which would hurt efforts to
turnaround competitiveness) or cutting benefits (given the
high level of unemployment), while at the same time
improving incentives to return to work. The new
agreement that was finally reached on 14 May 2014 does
contain measures that tighten certain benefits rules to
generate budget savings, as well as a few changes to
help improve incentives to return to work, including
rechargeable rights 30. For employees returning to work
after a period of unemployment, this mechanism lets them
hold on to all or part of their unused jobless benefits, and
to add them to any new rights acquired during the new
period of activity, in case they become unemployed again.
Stimulating growth
The competitiveness pact and the responsibility pact
have a broad vocation of stimulating growth, which is
expected to have a positive impact on the labour market.
The competitiveness pact announced in November 2012
was the first set of reforms engaged by François Hollande
to turnaround the French economy and its growth potential.
This pact aims to provide a comprehensive response to the
country’s competitiveness deficit by acting on price
competitiveness (with the EUR20bn CICE tax credit) and
non-price competitiveness (measures to support innovation,
SME financing, to make the country more attractive and to
reduce red tape). As its full name indicates (national pact
for growth, competitiveness and employment), the PCCE
February 2015
aims to turnaround employment while at the same time
restoring competitiveness. Yet the pact does not specify
which objective should be given the highest priority. By
using a single instrument (reducing labour costs) to try to
attain two antagonistic objectives (turning around
competitiveness requires, among other things, an upturn in
productivity gains), the PCCE risks failing to meet either
satisfactorily.
It is worth noting, however, that according to the
INSEE Mesange macroeconomic model, a EUR20bn
cut in employers’ contributions would reduce the
unemployment rate by one point 31 , a non-negligible
theoretical effect that would get an additional boost from
the measures in the responsibility pact.
The responsibility pact, announced in January
2014, reinforces the supply-side policies initiated by the
PCCE. It contains a cumulative total of EUR24bn in
reductions in corporate taxes and contributions (on top of
the CICE tax credit), spread out over time through 2020,
in exchange for hiring. This hiring condition differentiates
the responsibility pact from the PCCE, which does not
contain any such commitments. Although this marks a
step forward, it will be hard to implement: in the absence
of growth, companies are finding it difficult to make hiring
commitments. The pact was counting on sector
agreements, but they have only trickled in.
Another particularity of the responsibility pact is that the
reduction of charges is spread out over time and the cuts are
of different nature, which tends to reduce their impact. In
2015, the EUR4.5bn reduction in employers’ contributions to
the URSSAF, the organisation that collects social security
and family benefits contributions, targets low wage earners
(between 1 and 1.6 times the minimum wage). Minimum
wage earners will no longer be even subject to this type of
charge 32. This is a direct support measure for low-skilled
labour, while the other measures are more generally and
indirectly aimed at supporting companies and employment.
This is the case for the EUR1bn reduction in family welfare
contributions for the self-employed and tradesmen, and the
3-year elimination of the company social solidarity
contribution (Contribution Sociale de Solidarité des
Sociétés, EUR5.5bn, including EUR1bn in 2015). As of
2016, companies will benefit from an additional EUR4.5bn
in reductions in family allowance contributions, and the
target group will be expanded to include workers earning up
to 3.5 times the minimum wage. The corporate tax
surcharge will also be eliminated that year, reducing
corporate taxes by EUR2.5bn. In 2017, the normal
corporate tax rate of 33.3% will be cut to 32%, and then to
28% by 2020 (the equivalent of EUR6bn in tax relief).
Conjoncture 15
 Macron Draft Law for Growth and Business
Measure Objectives Impact
Deregulation
Revise fee schedules for regulated legal Lower fees by gearing them more towards the real costs incurred by Purchasing
professions the legal profession power
Remedy the negative effects of the current situation: limitations on
Simplify start-up conditions for legal Activity –
services, regional inequalities, unequal access, obstacles to career
professions employment
development, notably for women, and an aging profession
Expand the scope of candidatures for Restore the system’s logic and effectiveness; reduce costs for the Purchasing
lawyers appearing before the Court of Appeals French power
Create a corporate lawyer status Employment
Open up capital between legal and Increase resources for professionals to start a business, relocate, join Activity –
accounting professionals forces and develop employment
Activity –
Offer French passengers a complementary transport alternative to
employment –
Deregulate bus transport services the train and car: facilitate mobility, make travel less costly and more
purchasing
environmentally friendly
power
Cap the increase in motorway tolls; guarantee construction
Strengthen regulations on road-related Purchasing
companies, notably SME, better access to motorway construction
businesses power – activity
contracts by expanding tendering requirements
Purchasing
Reduce the turnaround time and cost of Reduce the associated turnaround times and costs; facilitate access
power –
obtaining a drivers’ license to drivers’ licenses to increase social and professional mobility
employment
Boost expertise in commercial urban
development to lift barriers to competition Lift barriers to competition in commercial urban development for Purchasing
between stores and to provide consumers better installation of retail areas power – activity
more choice
Make the different tools for intermediate “affordable” housing more
Activity –
coherent and easier to understand to increase supply (increase
Meet the demand for intermediate employment –
constructability), support the construction industry, provide easier, more
housing purchasing
affordable access to housing for middle class households (greater
power
mobility), and reduce pressures on low-income housing
Investment
Stimulate investment and accelerate Simplify regulatory procedures, notably to meet targets for issuing
major industrial and urban development building permits within 5 months; support the construction and public Activity
projects to promote growth works industry
Encourage companies to develop Facilitate the allocation of share warrants for company founders
employee shareholding plans and to promote (bons de souscription de parts de créateurs d’entreprise, BSPCE) and Activity
an entrepreneurial culture free shares (attributions gratuites d’actions, AGA)
Simplify employee savings plans to
enhance their development, on behalf of Activity
financing the real economy
Revitalise active management of
government shareholdings (disposal of Activity
government owned stakes)
Employment
Facilitate Sunday and evening working Activity –
Simplify, clarify and make more equitable the system in special
hours, on a voluntary basis, with all employment –
tourism areas (currently no wage compensation is planned and work is
companies, regardless of size, obliged to pay purchasing
mandatory) and PUCE (wage compensation; voluntary basis)
wage compensation power
Make labour arbitration procedures (Prud’homme) faster, simpler,
Reform judicial procedures for labour Employment
more predictable and effective
Enable ailing businesses to continue operating in order to safeguard
Strengthen protections of collective as many jobs as possible; restore an equilibrium in the social dialogue Employment
actions between creditors, employees and shareholders; create specialised – activity
commercial courts for ailing corporate giants
Decriminalise “obstructionism” (délit
d’entrave)

February 2015 Conjoncture 16

 Lastly, the Macron draft law for growth and
business, named after the current Economy Minister,
was presented before the Council of Ministers on 10
December 2014. This law takes a different but
complementary angle of attack from the measures in the
two pacts. This law seeks to lift a number of obstacles
hampering business and employment in numerous
sectors, to encourage competition and by doing so to
free up purchasing power. This mixed bag of measures
targets several regulated professions, Sunday work,
drivers’ licenses, intermediary housing, ground
transport, employee savings plans and the labour
arbitration tribunals (Prud’hommes) (see table). The
proposed changes are significant, and could have rapid,
visible effects, although the overall impact will be rather
mild, assuming the law is enacted in its original form and
in a timely manner (currently planned for summer 2015).
Yet the draft law risks being watered down after
triggering fierce protests from some of the targeted
professions and opposition from deputies as well.
What else?
Although the latest measures to fight unemployment
are a step in the right direction, they can be criticised
mainly for their lack of boldness as well as for
procedures that are often confusing or even
contradictory. The remedies currently being tested are
far from a shock therapy. Consequently, it is hard to
expect them to have much more than a limited impact,
diluted over time.
A lot more still needs to be done, even though the
executive branch sometimes gives the impression that
what it has put in place so far will suffice. But this is not
the case. There is room to improve current actions,
notably in terms of flexicurity. Internal flexibility, for
example, could be taken further by facilitating the use of
partial unemployment and job preservation agreements,
via less rigid application conditions. In general, under the
flexicurity guidelines recommended by the European
Commission, France still has room to progress by easing
the legal restrictions on collective dismissals, enhancing
the performance of its vocational training system,
increasing the effectiveness of its employment policy and
optimising the unemployment insurance system 33.
There needs to be a significant reduction in the
regulations and costs surrounding collective dismissals.
Some of the measures in the January 2013 job security
February 2015
agreement work in this direction. The Macron law also
calls for the labour arbitration tribunals (Prud’hommes) to
be reformed and aims to make redundancy procedures
less costly. But there is room to go further to reduce the
legal insecurity facing companies, due to protests and
the lengthy process of redundancy procedures. For
example, it would help if the criteria for justifying layoffs for
economic reasons was less restrictive, notably by making
the notion of “safeguarding corporate competitiveness”
less subject to interpretation. This kind of measure would
help companies gain external flexibility, and would reduce
the cost of layoffs, which is often mentioned as an
obstacle for offering open-ended CDI job contracts. A
broad simplification of the labour code would help in the
same vein.
When examining the question of unemployment and
what new or different measures could be used to
resolve the problem, we cannot help but refer to the
2003 CAE report by Blanchard and Tirole. The first big
idea defended by the two economists is the introduction
of a corporate economic redundancy tax (taxation
des licenciements économiques des entreprises), based
on the “polluter pays” principle used for environmental
issues, or the bonus-malus system in the insurance
sector 34 . The advantage of this system is that
companies internalise the cost engendered by their
layoffs for the unemployment insurance fund. This
makes them directly responsible financially, which
should lead to fewer layoffs and more secure jobs.
Above all, with this financial responsibility, judges would
no longer need to rule on the economic justification of
redundancy procedures. Dismissal decisions would be
left to business leaders, who assume the cost directly.
Their judgement would prevail and the administration
would have no reason to step in and intervene. Yet such
a tax would not only be hard to calibrate, it would be
difficult to implement as well. According to the authors,
however, the expected benefits of this measure are
enormous: the tax would “kill four birds with one stone”
by helping reduce unemployment, excessive judicial
intervention in redundancy procedures, the
unemployment insurance deficit and the duality of the
labour market.
Duality would be reduced by diminishing the
threshold effect between the lower cost of fixed-term
CDD contracts and the higher cost of open-ended CDIs.
By internalising the cost of layoffs (or without going that
far, by making this cost more predictable), CDI contracts
would seem less repulsive and CDD contracts less
attractive. Taking this logic to the extreme in order to
Conjoncture 17
totally eradicate labour market duality, Blanchard and
Tirole’s second big idea is to return to a unique job
contract. This fashionable solution is often brandished
as the panacea for French unemployment. Yet as
radical as it may be – and assuming it is feasible – it
would only be one reform among several others that
need to be launched.
Blanchard and Tirole advocate a modular unique job
contract, one that plays on the notion of a probation
period and gradually increases workers’ rights and
company obligations, based on seniority and the
employee’s recent experience in the job market. It is
interesting to note that this closely resembles the Jobs
Act currently proposed by Matteo Renzi in Italy. The law
aims precisely at reducing the segmentation between
CDD and CDI job contracts by changing the nature of
the CDI: job protection is gradually increased in keeping
with seniority, and redundancy procedures are
simplified. As to CDD’s, they are extended to up to three
years. For the same reasons, Spain has also made
major changes to redundancy conditions, which were
tightened for CDD and loosened for CDI.
For France, what all this means is that it needs to
attack the problem of job market rigidity “from both
ends”, i.e. by removing some of the rigidity in CDI and
by no longer adding flexibility primarily via CDD.
Another component of flexicurity is the
unemployment insurance system, where a more
optimal compromise needs to be found between
protection for beneficiaries and incentives for returning
to work. There are numerous proposals for reform. The
most recent negotiations on unemployment insurance
did not change things much. The talks had barely
ended before comments were already being made on
the next round of negotiations (scheduled for early
2016) on tightening the conditions for receiving
benefits in order to facilitate the return to work. In this
respect, the German model might not be easily
replicated, and might not even be the right one to
follow. Still, the broad scope and apparent success of
the changes introduced under the Hartz reforms
provide food for thought (see box 3).
In France, there are several leverages that could be
activated to accelerate the return to work and lower
unemployment: 35 reduce the maximum duration of
unemployment benefits and/or lower the ceiling on
compensation; extend the period of affiliation before
being eligible for rights; introduce digressive jobless
benefits; postpone the age at which seniors benefit from
more favourable compensation conditions to age 52
February 2015
from 50; change the rule of 1 day of benefits for 1 day of
contributions; cap the net replacement rate (and not the
gross rate like today); strengthen penalties for
insufficient job hunting and correct the perverse effects
of the reduced activity allowance. 36
To be fully efficient, however, more needs to be
done to reform the unemployment insurance system
than simply tweaking a few parameters. The system
must be reconsidered in its entirety 37, its financing must
be restored, its resource base diversified and
expanded 38, and its governance overhauled.
Box 3: The unemployment benefit system in Germany
The Hartz labour market reforms were implemented
between 2003 and 2005. The unemployment benefit system
has undergone numerous reforms based on the principle of
“incentives and demands”. The goal is to reduce the duration
of unemployment through stronger incentives to actively
search for work and through more effective job placement.
Hartz I, which took effect on 1 January 2003, strengthened
the eligibility requirements for jobless benefits. It was now up
to jobseekers, and not the employment services, to prove that
a refused job offer was unacceptable. Acceptability conditions
are gradually tightened over the duration of unemployment.
Benefits are reduced each time an acceptable offer is refused.
Vocational training and job placement services for the
unemployed were also improved.
Hartz II, which took effect on 1 April 2003, triggered a
boom in mini-jobs and midi-jobs, two low-paying job categories
with few charges. A new subsidy was created to facilitate
business start-ups by the unemployed.
Hartz III, which took effect on 1 January 2004, focused on
reorganising public employment services and increasing the
efficiency of job placement for the unemployed.
Hartz IV, which took effect on 1 January 2005, tightened
further the eligibility conditions for unemployment benefits,
notably for the long-term unemployed. After twelve months of
unemployment, they were transferred out of the
unemployment insurance system and switched to an
unemployment assistance scheme, offering lower benefits and
the obligation to accept employment, even if it does not
correspond to qualifications or is far from the home place. The
minimum affiliation period to qualify for benefits was reduced
to 12 months of contributions over the past two years from
three years previously. The fourth reform package introduced
“1-euro jobs”, small jobs geared towards the hardest to find
work. Later, in February 2006, the maximum duration of
unemployment benefits was shortened from 32 months to 18
months for the over-55 age group and from 26 months to 12
months for the other age groups. On 1 January 2008, the
duration was extended again to 24 months for the over-58 age
group.
Conjoncture 18
 The unemployment insurance system must also be
better integrated with other social welfare services, so
that it becomes possible to consider reducing the
generosity of jobless benefits in exchange for raising the
benefits of other programmes. Jobseekers also need to
be provided better support, because the system’s
generosity is in vain if the monitoring of beneficiaries is
defective. A more effective, less costly unemployment
insurance system could be put to work on behalf of the
supply-side policy currently being promoted. This would
make it possible to reduce the relatively high cost of
unemployment insurance contributions for companies
and would help lower the cost of labour, as was done in
Germany.
Lastly, among the unexplored but regularly
mentioned options for fighting unemployment, there is
the issue of reforming the minimum wage, the level of
which and pace of increase both being a source of
concern. As suggested in the Enderlein-Pisani-Ferry
report (2014), the formula for calculating the automatic
increase in the minimum wage could be changed to
bring it more in line with productivity gains 39. On several
occasions, there has also been talk of differentiating the
minimum wage level based on such factors as age,
qualifications, distance from employment, and region. A
differentiated minimum wage should favour
employment, notably for young persons with no
qualifications. Yet training is just as much a relevant
answer for resolving the unemployment problem in this
latter category.
 
February 2015
Since the late 1980s and early 1990s, fighting mass
unemployment has been one of the economic
challenges that France has struggled to cope with, so
far without success. The failure to win this battle despite
repeated efforts shows just how difficult this problem is
to resolve. This is largely due to its deep and entangled
roots, as we pointed out in the introduction. It is also due
to the mismatch and shortcomings of the solutions set
up so far, amid a general reticence to accept change 40.
Indeed, it can be discomforting to make a clear and net
cost-benefit analysis on reforms, since the benefits are
uncertain and not immediately visible, while the costs
are more easily and rapidly identifiable. This is true
regardless of the scope of the reform. A priori, the costs
of a small-scale reform will be more limited, but so will
its benefits. Large-scale reforms come with a higher
price tag, but the expected benefits are much higher too.
The current government’s responses to mass
unemployment seems to fit more within the first
category. Further measures are therefore needed. The
government cannot simply make do with what it has
already set in place. Granted, it has made some smart
moves, but they do not go far enough. To win the game,
it will clearly have to make some more bold plays.
6 February 2015
helene.baudchon@bnpparibas.com
Conjoncture 19
 Appendix: the 35-hour workweek, progress or handicap?
The mandatory 35-hour workweek has been a recurrent subject of debate since it was adopted in 2000. Due to
its exceptional nature (no other country in the world has adopted legislation that places such a limitation on working
hours), it is frequently blamed for the French economy’s lack of competitiveness. In contrast, its advocates claim it
not only represents major social progress, but also has a beneficial impact on employment and productivity. In this
appendix, we will make a general overview of the issue, starting with the terms of the Aubry law introducing the 35-
hour workweek, the numerous amendments that followed and its overall economic impact. In the end, we conclude
that the 35-hour workweek has been more harmful than beneficial for the French economy.
The law did generate several hundreds of thousands of job creations, but at the expense of major complications for
businesses, a heavy burden on public finances and mixed social welfare benefits. Even so, it would not be that easy
today to try to backtrack and repeal the 35-hour workweek. No sooner is this idea mentioned, even in passing or just a
simple suggestion, it immediately triggers an outcry of opposition. Fifteen years after it was introduced, the 35-hour
workweek is still a sensitive and divisive subject. Some reject it outright, while others express their firm attachment.
Repealing the Aubry law would engender new complications, whereas the initial shock has already been absorbed. In
any case, the 35-hour workweek as it was initially envisioned has already been largely unravelled.
Nonetheless, as part of efforts to revitalise the French economy, there are grounds for exploring ways to make the
system simpler, more flexible, less costly and less restrictive.
1/ Objectives and implementation
a/ The initial Aubry laws
The introduction of the 35-hour workweek fits within an ongoing movement to reduce working hours initiated early in
the 20th century and which aims to improve the living conditions of payroll employees. In addition to its social welfare
dimension, there are also economic considerations: reducing working hours is an incentive for greater leisure, which
presumably means more consumption. But above all, reducing the workweek was seen as the new spearhead in the
fight against unemployment.
The first law was presented by Martine Aubry, then Minister of Labour, and approved on 13 June 1998. It called for a
gradual reduction in the legal workweek from 39 hours to 35 hours as of 2000 (2002 for small and mid-sized
enterprises). It introduced the reduction in working hours (reduction du temps de travail, RTT), as well as the principle of
mandatory compensatory rest in order to regulate the use of overtime. Incentives were also introduced to support
companies that reduced the number of working hours by 10% before 2000, in exchange for new hiring or job
preservation.
Negotiations following the first law led to a second law that was voted on 19 January 2000. It officially established
the mandatory transition to a 35-hour workweek, and stipulated compensation measures for both companies and
employees:
• greater flexibility in the management of working hours: the legal duration was set at 1600 hours annually, which
made it possible to modulate weekly working hours according to activity;
• financial aid: employer charges were reduced when collective bargaining agreements on RTT were signed and the
number of working hours was effectively reduced (but not conditioned on creating or preserving jobs);
• a mandatory guaranteed monthly pay for employees earning the minimum wage, to avoid a decline in real wages
due to the reduction in the number of hours worked.
The law also created a limit on working days for white-collar workers, which was set at 217 days a year, to allow
greater flexibility in managing their working hours. For the basis of calculations, companies were also authorised to
define the effective duration of work excluding breaks and training. The system of overtime was also modified: a 25%
pay increase is now applied on overtime work up to the 43rd hour of work, and a 50% increase thereafter (within the limit
of the annual ceiling).
Although the second law arose from and complements the first, it follows a different logic 41. Aubry 1 clearly fits within
the notion of job sharing which was supposed to permeate the entire reform: aid was conditioned on the reduction of

February 2015 Conjoncture 20

working hours and on job creations. It had an immediate impact on employment, but at the price of strong wage
moderation. Aubry 2 eliminated the job creation conditions and eased the requirements to reduce working hours (no
more quantified targets, redefinition of effective working hours, modular options). The cost was not as high for
companies, and was offset through productivity gains, which enabled them to maintain wages in exchange for less
hiring. Aubry 2 takes a less restrictive and more traditional approach based on reducing charges to create hiring
incentives.
b/ The successive reforms
Following these two laws, numerous adjustments were made to make the system more flexible, but without calling
into question the principle of restricting legal working hours. The first reform, adopted on 17 January 2003, consisted
mainly in annualising working hours: the standard 35-hour workweek disappeared in favour of a cumulative total of 1600
working hours a year. This reform replaced the principle of automatic compensatory rest for the first four hours of
overtime with a pay increase. It transformed the working time savings accounts into accounts that could receive money
and serve as savings accounts. Management of overtime was delegated to company agreements and the legal annual
contingent was raised from 130 hours to 180 hours (and then to 220 hours following the decree of 9 December 2004).
Reductions in employer charges were separated from the length of working hours so that all companies could benefit
from them, which offset the upward shift in the minimum wage as part of its standardisation, scheduled for 2005.
A second reform, voted on 31 March 2005, covered overtime again, an essential variable making it possible to
adjust working hours without formally calling into question the principle of the 35-hour workweek. Henceforth, employees
can voluntarily exceed the contingent of overtime hours stipulated by law or by collective bargaining agreements (within
the legal limit of 48 hours weekly). The law also allows white-collar management to exchange their leave time for higher
pay, and eases the restrictions on working time savings accounts: the ceiling was removed, the storage of rights was no
longer limited in time, the accounts could accept compensatory rest days, RTT days and leave, and they could be
converted into supplementary wages or savings.
The third reform fits within the framework of the TEPA law on labour, employment, and purchasing power voted on
21 August 2007. Its main goal was to make overtime work tax exempt (exoneration of employee charges and income
taxes for employees, and employer charges for employers) 42.
Lastly, a fourth reform was adopted on 20 August 2008. It allows companies to set the contingencies for overtime
work by company and not by sector agreements, along with the overtime rate and compensatory rest, the conditions for
hourly and daily wage arrangements for white-collar management and measures to smooth working hours over the year.
2/ The impact of the 35-hour workweek on the economy
After this series of reforms, the 35-hour workweek was no longer applied much in the strict sense of the term. The
law clearly helped reduce working hours, but the size of the reduction is still a subject of debate. RTT was also
implemented during very favourable cyclical times, which makes it harder to analyse the impact of the Aubry laws on
employment and competitiveness.
a/ Employment and unemployment
According to an INSEE 43 report, the 35-hour workweek directly generated 350,000 jobs between 1998 and 2002
(compared to a total of 2.1 million jobs created over the period). An OFCE study 44 estimates that the 35-hour workweek
created a total of 480,000 jobs. At the time, the government was counting on the law to create 700,000 jobs. This goal was
not fully met (due to the overestimation of the reduction in working hours and the underestimation of productivity gains), but
the results proved to be positive. Similarly, at the beginning of the 2000s, the observed decline in France’s unemployment
rate was one of the biggest in the developed countries (see chart). The 35-hour workweek surely had something to do with
this success.
Yet the boost was only brief and cyclical. Application of the 35-hour workweek did not improve the structural
functioning of the labour market. Its positive impact on employment diminished over time in part because companies
took advantage of the extra flexibility provided by overtime work (enhanced by its tax exempt status), to the detriment of
hiring new employees 45.

February 2015 Conjoncture 21

 Growth and unemployment

a positive figure indicates a decline)

Change in the jobless rate between
8

1997 & 2002, pp (inverted sign:

7 SPA
6 IRL
5
4 FRA
SWE
3 ITA
EMU NLD
2 UK BELPOR
1 GER AUT
USA
0
0 1 2 3 4 5 6 7 8 9 10
Average annual growth, 1997-2000, %
Sources: INSEE, Eurostat, BEA, ONS

b/ Cost of labour, productivity and competitiveness

One of the main criticisms regularly made against the 35-hour workweek is that it hurt competitiveness by driving up
the cost of labour. The law imposed a reduction in working hours at a constant wage, which automatically increased the
hourly wage cost. Yet the introduction of the 35-hour workweek was accompanied by measures designed specifically to
offset this effect. From the beginning, the law provided a reduction in social charges for companies that reduced working
hours by 10%, which was then extended to all companies that switched to a 35-hour workweek. This measure was to
offset a third of the higher costs engendered by the reduction of working hours. Another third was to be offset by wage
moderation and the remaining third by labour productivity gains. Wage moderation and productivity gains were right on
target 46. The minimum wage, in contrast, was not subject to the same wage moderation. In the end, we do not see an
obvious upsurge in unit wage costs during the years following the introduction of the 35-hour workweek. From this
perspective, it is difficult to blame RTT for the French economy’s loss of competitiveness, even though it occurred at the
same time.
d/ Flexibility and social impact
The main complaint about the 35-hour workweek has less to do with its repercussions on labour costs (which were
offset) and is more about the complications it created, notably for SME. Foremost of these was the rigidity engendered
by the principle of working hours imposed by national law, without taking into account the company level or sector level
specificities. This echoes Raymond Barre’s warning in 1978: “concerning the reduction in working hours, any unilateral
and uniform measure will increase rigidities at a time when a certain flexibility is necessary.”
This is why various reforms were attached to the law to ease the system, so that companies could adjust working
hours according to their activity and its dynamism 47. This hourly flexibility was accompanied by greater organisational
flexibility, both internally (creation of new teams, greater versatility, renewed insourcing of some activities) and externally
(greater use of temporary employment, outsourcing and even delocalisation).
Even so, for many companies who were forced to adopt the system, the lack of flexibility and workplace
disorganisation were still a problem. The situation in hospitals was the most striking and mediatised example. Unable to
adapt, the reduction in working hours was seen as restricting or even destroying business.
As to productivity, the impact of the 35-hour workweek was not all positive. With the intensification of work came
greater pressure and stress, which was also fuelled by the imposition of working hours that were standardised and
controlled (notably in industry), and by demands for greater flexibility, responsiveness and versatility. These factors
ended up deteriorating working relations 48, which were not necessarily offset by the improvement in living conditions
outside of the workplace, since the extra leisure time was offset by wage moderation. All of this strained productivity,
which may be a very localised phenomenon, but nonetheless a real handicap for the companies concerned.
The 35-hour workweek can be considered to have had a positive impact on employment, but from a social
perspective, the results are more mixed, and even nil in two respects: reinvigorating the social dialogue and boosting
consumption. Concerning consumption, a DARES study shows that most of the free time liberated by the reduction in

February 2015 Conjoncture 22

working hours was devoted to family life, rest, home improvements and gardening. These domestic activities do not
necessarily require an upturn in spending, especially at a time when household revenues were under pressure 49.
All of this explains why there are such mixed feelings concerning the 35-hour workweek, which tends to be seen
more as a handicap than true progress.
e/ The cost for the state
Lastly, implementation of the 35-hour workweek placed a very costly burden on public finances. According to the
INSEE, charges were reduced by a total of EUR7.7bn in 2002 50. Reduced spending on jobless benefits and higher tax
revenues due to the increase in employment failed to cover the cost of subsidies. The INSEE estimates the net cost for
the state at EUR1.5bn in 2002. These are only approximate figures because it is impossible to evaluate precisely the
economic gains attributable to the 35-hour workweek. The state may have picked up the tab engendered by the 35-hour
workweek so that companies could boost employment in the short term, but this came at the high price of wider public
deficits, a handicap for the economy as a whole and for long-term employment in particular.
Research for this text was provided by Raphaël Cohen (an Economics Research intern, July-December 2013).

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NOTES
1 Unless stated otherwise, the unemployment rate for France includes mainland France and the overseas territories, as measured by the INSEE.
2 See Cahuc et alii (2013).
3 The statistics analysed in this paragraph are taken from the OECD Employment outlook, 2014.
4The employment rate is the ratio of employed in a given age group to the working age population. The participation rate is the ratio of the labour

force to the working age population.

5 See Freyssinet (2014).
6 Unemployment, La Découverte, 1988.
7 The Okun law is named after the American economist that formulated it in 1962. It empirically expresses the proportionality between growth and

unemployment. Each point of growth below (or above) the potential growth rate (estimated at 3% at the time) leads to a half-point increase
(decrease) in the unemployment rate.
8 See box 3 below for a summary of these reforms.
9 The OECD employment protection indicators measure the procedures and costs involved in dismissing individuals or groups of workers and the

procedures and costs involved in hiring workers under fixed-term and temporary employment agency job contracts.
10 The real problem is collective layoffs rather than individual dismissals.
11 Source: European Commission, Indicators for monitoring the Employment Guidelines including indicators for additional employment analysis,

2010 compendium.
12 Indicators referred to in the 2000 report on full employment by the French Council of Economic Analysis (CAE). The job loss rate measures the

monthly probability for working individuals to lose their jobs. The unemployment exit rate measures the probability that unemployed individuals will
find work within the next month.
13 This figure was calculated by the Conseil d’Orientation pour l’Emploi (COE) in its September 2013 report on job vacancies.
14 Low geographic mobility is partly a consequence of the major surge in real estate prices since the mid-1990s.
15 The monthly base wage (SMB) is the gross wage before the deduction of social welfare contributions and the payment of social benefits. It does

not include any bonuses or overtime. The amount generally corresponds to the first line on an employee’s pay slip.
16 The 2013 vocational training reform replaced this percentage with a reduced, single contribution of 0.55% for companies with fewer than 10

employees and 1% for the others.

17 A procedure that enables the employer and employees to reach a common, friendly agreement on the conditions for terminating the job

contract, which is only possible with CDI long-term contracts. They cannot be imposed by one party or the other, and are exclusive of dismissals
and resignations.
18 Bertrand Martinot provides a good picture of the tangle of players involved in job policy in his book on reversing the unemployment curve:

“Chômage: inverser la courbe”.

19 Except in urgent situations, this law stipulates that “any reform project planned by the government that pertains to individual or group relations to

labour, employment and vocational training and which fits within the scope of national and inter-professional negotiations” must be the object of
prior consultation with the social partners in the light of any negotiations. Towards this end, the government furnishes an “orientation document
presenting the key points of the diagnosis, the stated goals and the main options.”
20 Temporary employment services and seasonal fixed-term CDD contracts are exempt from this surcharge.
21 Differential monitoring has been operational since January 2013, and sets three levels of support depending on the distance from employment

(reinforced support, guided support or remote support).

22 The professional job security contract (CSP), which took effect in September 2011, is geared towards redundancies for workers who have been

employed at least a year, in companies with less than 1,000 employees. It offers them the possibility of receiving an allowance (paid by the
national employment agency with a contribution from the company) and strengthened job support to help them find work, for a maximum of 12
months.
23 The Operational Preparation for Employment (POE), introduced by the vocational training reform of 2009, enable jobseekers to benefit from

subsidised training necessary for acquiring the skills needed to obtain a job corresponding to a job offer that a company has filed with the national
employment office. This is a good way to bring together job offers and demand, notably for job profiles that are difficult to fill.
24 According to Eurostat data for the 15-24 age group, collected in late 2014, the percentage of young NEET in France is 11.2%, compared to

6.3% in Germany and a eurozone average of 12.8%.

25 Local public organisation dedicated to youth.
26 For more on this subject, see the January 2013 report by the French Court of Audit: “The labour market: to cope with high unemployment, target

policies better”.
27 See Cahuc and Ferraci (2014).
28 Source: DARES.

February 2015 Conjoncture 24

29 January 2015 estimate.
30 For more information on the new agreement, see Baudchon (2014).
31 See Klein and Simon (2010).
32 In other words, they would no longer be required to pay social security contributions, which cover healthcare, maternity leave, disabilities, death,

autonomy solidarity contributions, old age insurance, family allowances, workplace accidents and occupational diseases. They would still be liable
for other mandatory employer contributions, with the exception of social security contributions (including contributions for unemployment
insurance, complementary pensions, the tax on apprenticeships and vocational training).
33 For further information, see Bertrand Martinot, “Chômage: inverser la courbe”.
34 A modulation of employer contributions on unemployment insurance (for all job contracts and not only for very short-term contracts as is

currently the case) would serve the same purpose.

35 We have left aside the parameters whose modification would reduce the UNEDIC deficit (higher contributions, inclusion of civil servant

contributions, adjustable rights in keeping with the unemployment rate).

36 The success of this measure has been a double-edged sword. The risk is that unemployment benefits would be deviated from their primary

function, i.e. to ensure the replacement of revenue, and that they would be considered as supplementary revenue. The reduced employment
regime also risks confining individuals in short, instable jobs.
37 For the full picture, see Bruno Coquet (2013 and 2014).
38 It would no longer rely solely on the contributions paid on business sector wages as is the case today.
39 Today, France’s minimum wage is automatically increased on 1 January according to a formula that offers two guarantees: purchasing power

(by indexing it to the consumer price index) and participating in the nation’s economic development (by linking it to the change in the purchasing
power of the average hourly wage). If inflation exceeds 2% with regard to the last legal minimum wage hike, an early wage increase is made. The
minimum wage is also given an extra boost from time to time. The most recent one was a 0.6% increase on 1 July 2012, the first since 2006.
Since 2008, a committee of independent experts provides recommendations on minimum wage trends and the opportunity for an extra boost. The
latest report published in December 2014, like previous reports, did not recommend raising the minimum wage, to avoid placing greater strain on
competitiveness and employment. On 1 January 2015, the minimum wage was raised to EUR9.61 an hour, i.e. a gross monthly wage of
EUR1,458 and a net monthly wage of EUR1,136. The French minimum wage is one of the highest in Europe and in the OECD. The automatic
annual increase in the minimum wage is specifically French. The extent of the minimum wage on the distribution of wages is also stronger in
France than in the other OECD countries. France stands out too for the relative level of the minimum wage compared to the median wage, which
at 62% in 2012 is significantly higher than elsewhere in Europe (by about 15 points). Yet thanks to the reduction of charges targeting low-wage
earners, the cost of an employee earning the minimum wage has been reduced to a little more than half of that for a worker paid the median wage.
40 Reticence to change is the idea behind Denis Olivennes’ provocative statement in 1994: “the French preference for unemployment”. The status

quo is implicitly preferred over change, because the first is considered to be less harmful than the second. This suggests a kind of optimum
situation. Yet although we easily admit there is reticence to change, we cannot consider the current situation as optimal. Moreover, it is not change
that is lacking but results.
41 Heyer and Timbeau (2000).
42 Tax exemption was eliminated in July 2012.
43 Gubian et alii (2004).
44 See ibid Heyer and Timbeau.
45 Heyer (2011).
46 See ibid Gubian et alii.
47 Charpentier et alii (2005).
48 Askenazy et alii (2004).
49 Cette et alii (2003).
50 See ibid Askenazy et alii.

February 2015 Conjoncture 25

ECONOMIC RESEARCH DEPARTMENT
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