Macro Economics: The Growing Unemployment in France - Essay Example

? THE GROWING UNEMPLOYMENT IN FRANCE by of the of the of the School October 22, Over the years, the labour market performance in France has been regarded as unsatisfactory. The first oil shock and the beginning of recession in 1974 marked a continuous rise in the employment rate of France. This was from just below 3% in 1973 to a 10.7% peak in 1987. There was however a gradual decline to 8.8% in 1990, but the trend assumed its ascent after this. It is believed that labour supply and demand factors contributed to the rise of unemployment. This is because the France labour force grew by approximately 16% between 1970 and 1992, which was concurrent with an increase in the population of the working age. Masson (1995, p.7) states that “During the same period, employment growth has been disappointing: there was no net increase in employment between the mid-1970s and the late 1980s.” Between 1973 and 1987, male employment dropped; employment in ordinarily male dominated industrial sectors such as chemicals, metals and mining also declined. There has been a renewed rise in unemployment in all OECD member countries, as well as all the other major seven, since the end of 1990. France also suffers from notably severe problems of long-term, female and youth unemployment. According to Girling (1998, p.162), “in June 1997, there were some three million unemployed; more than one third were ‘long-term’, that is, unemployed for more than one year.”Over half of those seeking employment were women as the less educated constituted the great majority of job seekers. France’s relatively poor performance on the unemployment front has been attributed to its demographic situation. The Organisation for Economic Cooperation and Development (1992, p. 61) points out that “France’s experience in terms of total population growth stands out: while others faced a slowdown, France’s was better maintained, given its higher birth rate.” It was until the mid-1980s that the rise in the working-age share of the total population in France got noticed. According to Waters (2003) employment in France by 1998 had risen to 11.8% above average for the EU. Despite the fact that young people suffer less from long term unemployment than their elders, they have difficulty entering the labour market. According to the Organisation for Economic Cooperation and Development (2009, p.51), “In 2007, only one unemployed youth out of four was still jobless twelve months later compared with two out of five unemployed in the 25-49 age group.” However, in current years France, like Germany, has witnessed the rate of unemployment rise for unemployed young people as well. In recent years, there has been a high rise in unemployment. According to the Organisation for Economic Cooperation and Development(2009, p.1) “Since the end of 2007, the unemployment rate has risen by 2 percentage points to reach 9.8% in July 2009, and more than 600 thousands individuals have joined the ranks of the unemployed”. On the other hand, the average unemployment rate of the OECD in 2009 had risen by 2.8%, and in July the same year, it stood at 8.5%. In 2009, unemployment in France continued to rise, and it was expected to exceed 10% in 2010. According to reports (france24.com, 2009) “After industrial output dropped off in France in early 2009, the Paris-based French Economic Observatory,OFCE forecast that the country's economy would shrink by 2.3 percent this year and that unemployment would top 10 percent in 2010.” The following table shows the unemployment rate of France in terms of the percentage of the labour force: France unemployment rate between 2008 and 2012, cited in Trading Economics, 2012. The rise of unemployment in France has been attributed to several factors namely; Employers’ Taxes: Social security contributions, especially for employers are very high in France. Masson (1995, p.16) points out that “The total employee and employer contributions as a ratio to income are higher than in all other industrial countries except Italy.” Personal income taxes are however lower than in other countries. Although below those in Italy, gross labour costs in France are substantially higher as a share of net earnings than in the United Kingdom and Germany. The reason behind this is because social security contributions in France rose significantly during the 1980s. The following table shows a comparison of earnings, direct taxes, and social security contributions; as a percentage of net earnings for a single worker. Year Italy France Germany U.K. Gross Earnings 1979 125 125 146 142 1989 138 132 155 139 Employees’ Contribution 1979 11 15 23 33 1989 12 23 27 26 Personal Income Taxes 1979 14 10 23 33 1989 26 9 28 26 Net Earnings 1979 100 100 100 100 1989 100 100 100 100 Employers’ Contribution 1979 58 47 23 14 1989 67 59 27 14 Total Labour Cost 1979 183 172 169 156 1989 205 191 182 153 Commissariat general du Plan 1993 cited in Masson, 1995, p.21. The Minimum Wage: Since 1950, France has had an institutional minimum wage. In fact, the current SMIC (Salaire minimum interprofessionnel de croissance) was introduced in 1970. Mechanisms applied for revising the SMIC have led to a substantial rise in the real value of the SMIC. According to latest reports on the SMIC, The number of people being paid the SMIC has increased over the last five years. It is believed that controlling the comparative rate of increase in the SMIC will have an amicable impact on youth employment. Wage rigidity in the SMIC has led to a reduction of the productivity of less skilled and less qualified individuals leading to unemployment. According to Masson (1995, p.25), “Empirical work in the United States and Canada has concluded that the minimum wage has had a negative impact on youth employment.” Generosity of Benefits: Majority of wage determination models indicate that benefits have a significant effect on wages. Some features of the benefits system may have an impact on unemployment. France is among the OECD countries with the longest benefit duration. Institutional Factors: Structural employment is also affected by other factors namely; hiring and firing regulations, the benefits administration system and other institutional factors that mainly discourage employers from taking new workers. Mismatch: In France, there is a huge mismatch between skills demanded by employers and those held by workers. The long-term unemployed have lower than average education attainment and are concentrated in the least-qualified occupations. Recent reports from the France labour ministry stated that, “These three million unemployed embody the failure of economic and social policies undertaken during the last few years” (Presstv, 2012). Currently the unemployment rate of France stands at ten percent meaning that approximately five million people are seeking for jobs. According to Droal (Firm-demography, 2012), the current rate of unemployment in France is 9.7 percent while in 2007, it was 8.4 percent. Country specific recommendations have been prepared by the European Commission, for each country in Europe and analysis of its economic situation has been done, and recommendations on appropriate measures to be taken by these countries have been provided. The economic activity of France is therefore expected to grow and unemployment to increase further. The European Commission (2012) has made the following recommendations to France. Strengthen and employ a budgetary strategy with adequate specific measures for 2012: This can be achieved trough prompt adjustment of extra deficit and accomplishment of structural adjustment exercise as designated in Council Recommendations supporting the Excessive Deficit Procedure. Present more reforms to argument labour market segmentation: This is possible through a review of designated features of employment protection legislation together with social partners according to national practices associated with administrative procedure for exclusive dismissals. Ratify labour market actions to ensure that older workers stay longer in employment: Providence of more and better apprenticeship programs to address the needs of youths will improve youth employment. Adopt a better and more balanced taxation system: The tax burden should be shifted from labour to other methods of taxation that have less weight on growth and extrinsic competitiveness. Make efforts to eliminate unjustified restrictions: These restrictions are mainly placed on organised professions and trades and specifically in the retail sector and services. Unemployment in France is certainly very high and persistent. This can be attributed to generous long-term benefits in relation to short-term benefits, employers’ tax wedge level, cost of capital, skills mismatch and minimum wage. Strengthening and employing a budgetary strategy, presenting additional reforms to argument segmentation in the labour market, ratifying labour market actions, adopting a more balanced taxation system and eliminating unjustified restrictions on professions and trades are positive steps towards reducing the problem of unemployment in France. Bibliography Droal, N., 15 June 2012. French unemployment continues to rise. [online] Available at: [Accessed 23 October 2012]. European Commission, 12 July 2012. Europe 2020 in France. [online] Available at: < http://ec.europa.eu/europe2020/europe-2020-in-your-country/france/index_en.htm> [Accessed 23 October 2012]. France24, 20 April 2009. French Unemployment Expected to Exceed 10 Percent in 2010. [online] Available at: [Accessed 23 October 2012]. Girling, J., 1998. France: Political and Social Change. New York: Routledge. Masson, P. R. ed., 1995. France: Financial and Real Sector Issues. Washington, DC: International Monetary Fund, Publication Services. OECD, 1992. OECD Economic Surveys France 1991-1992: France 1991-1992. Paris: OECD Head of Publications Service. OECD, 2009. Employment Outlook 2009 – How does France compare? [pdf]. Available at: [Accessed 23 October 2012]   OECD, 2009. Jobs for Youth/Des emplois pour les jeunes Jobs for Youth/Des emplois pour. Paris: OECD Head of Publications Service. Press TV, 2012. French unemployment hits 10-year record topping 3 million. [online] Available at: < http://www.presstv.ir/detail/2012/09/26/263706/french-unemployment-tops-3-million/> [Accessed 23 October 2012]. Trading Economics, 2012. France Unemployment Rate. [online] Available at: [Accessed 23 October 2012]. Waters, S., 2003. Social Movements in France: Towards A New Citizenship. New York: Palgrave Macmillan. Read More