France: More Jobs Despite OECD Michel Husson Member of ATTAC Scientific Council

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Table of Contents

Introduction
1- The bitter Harvest of Neo Liberalism
2- The Great Jobs Surprise
3- The 35-Hour Week, a French Story
4- An Alternative Explanation
Conclusion

INTRODUCTION

The 1990’s brought two very distinctive phases in the employment situation in Europe : stagnation until 1997, growth since then. France corresponds perfectly to this pattern, leading us to wonder whether we must view the improvement in the employment situation as the outcome of so-called “neoliberal” policies implemented over the past 15 years, under the dual patronage of the OECD and the European Commission. This paper will respond to this question in the negative and provide an alternative reading of the decade.

The first section describes how the labour market in France has changed since the mid-1980s. The second section shows that the recent upturn in terms of jobs can not be explained by a lower labour costs. The third section presents the specifically French story of the shorter workweek. The fourth section puts forth an interpretation of growth in jobs as a victory, albeit an indirect and fragile one, of the move to a shorter workweek.

1. THE BITTER HARVEST OF NEO-LIBERALISM

In this first part, we shall attempt to show that France has applied OECD recommendations at least to the same extent as other European countries. One way of arriving at this outcome is by comparing its performances from the standpoint of three synthetic indicators : wage share, rate of growth of GDP (Gross Domestic Product), and unemployment rate.

From the outset, we should briefly introduce two methodological points. The first bears upon the European unification process. Here the restrictions that the European countries chose to impose on themselves will be used as the reference, more than OECD recommendations. After implementing the well-known Maastricht criteria, essentially monetary and financial, and adoption of the Amsterdam treaty bringing in a new title on employment, it was agreed at the Luxembourg Jobs summit in November '97 that this strategy should be built on four main pillars : employability, entrepreneurship, adaptability and equal opportunities. Every year, a set of Guidelines are adopted for each of the pillars, which set out a number of specific targets for Member States to achieve in their employment policies. These Employment Guidelines are then transposed into concrete and administrative measures by each Member State, through their National Action Plans for Employment. Although this European Employment Strategy does not differ, in inspiration, from the OECD Jobs Strategy, a greater effort is made in relation to the former to present national policies.

The second methodological point concerns evaluation. Most OECD recommendations making up its Jobs Strategy are formulated in qualitative terms. Let us refer to the main ones :

- make wage and labour costs more flexible by removing restrictions that prevent wages from reflecting local conditions and individual skill levels, in particular of younger workers ;

- strengthen the emphasis on active labour market policies and reinforce their effectiveness ;

increase flexibility of working-time (both short-term and lifetime) voluntarily sought by workers and employers ;

- set macroeconomic policy such that it will both encourage growth and, in conjunction with good -structural policies, make it sustainable, i.e. non-inflationary.

The OECD puts out a broad range of indicators we shall come back to later on. However, since we are dealing with job creation, these institutional variables will have to make their way in the field of quantitative macroeconomic variables. This means there must be entry points that must correspond to real wage costs, in other words the wage share, competitiveness and the content of job growth. In fact, OECD strategy aims to create jobs via a lower wage cost enabling competitiveness to be improved, stimulating growth and creating more jobs with a given rate of growth.

The first indicator it is useful to examine is the wage share. The second is the unemployment rate, and the third is the rate of growth of the GDP (gross domestic product). In terms of these three points, France has taken much the same course as the European average.

The wage share[1] has increased more rapidly in France than the European average during the period immediately following the 1974-75 recession and was not “brought under control” again until a bit later, with the turn to a tight budget in 1982-83 (see Figure 1). In less than a decade, the “delay” was caught up, at the cost of a drastic fall in the wage share that dropped from 79.7% of the GDP to 72.1% in 1988. This fall continued afterwards, and remained insensitive to the upturn at the end of the 1980s.

  Figure 1. The wage share

« adjusted wage share » : share in percentage of GDP at factor cost
Source : European Commission

The unemployment rate has not undergone a course of change significantly different from the European average either (see Figure 2). From the end of the 1980s, France has registered an unemployment rate one point higher than the European average, but has followed changes in this rate very closely. Furthermore, this discrepancy can be explained by a quite markedly lower growth than the European average from 1984 to 1987, precisely at the moment the wage share fell (see Figure 3). This was only achieved at the cost of slowing down the economy, leading to excessive unemployment not made up for since.

Figure 2. Unemployment rate

Source : European Commission

Figure 3. Rate of GDP growth

Source : European Commission

1.1 OECD : Give them an inch …

This account does not correspond to the OECD’s interpretation of the evolution of the labour market in France, which views it differently. The 1997 Economic Survey (OECD 1997) is particularly helpful from this standpoint. It appeared in a phase when the conjuncture was turning around, after the short semesters of upturn following the 1993 recession. The situation appeared to be once more stuck in the “Eurosclerosis” that the job strategy was intended to counteract. Chapter 3 of this report gives a brief account of OECD recommendations, under the title : “Implementing the OECD Jobs Strategy”.

The OECD has no choice but to recognise the reality of wage moderation : “Since the early 1980s, real wages have tended to lag behind productivity gains and the wage share has fallen to below its level of the early 1970s”. But that did not suffice to improve the jobs situation. “ While wage moderation led to an improved labour market performance as of mid-1980 in the sense that employment in the private sector did not shrink further and the trend rise in unemployment became much slower, it did not turn around the unemployment situation.”

How do they get out of this contradiction ? The OECD brings in an outside factor, i.e. “the sharp rise in real interest rates in the early 1980s. Higher real interest rates and the associated balance sheet restructuring are likely to have pushed up equilibrium profit margins”. But this line of argument is not coherent : wasn’t the rise in interest rates a means of changing the balance of power between capital and labour, so as to exert pressure on the wage share ? And isn’t pushing up profit margins the whole point of this manoeuvre ? As for maintaining real interest rates at high levels throughout the 1990s, how can they not see that this is an essential lever for convergence towards Maastricht criteria ? In France, this disciplinary use of the interest rate is one important factor in the so-called “competitive desinflation” strategy, often criticised by Keynsians as a factor in unemployment (Fitoussi 1995).

Figure 4. Labour force structure

Source : INSEE, labour force survey.

The OECD also points out that ”despite wage moderation since the early 1980s, the cumulated rise in real labour costs in France between 1970 and 1995 was still some 40 per cent higher than in the United States”. But once again, this is an arbitrary figure. Over the same period, labour productivity increased by 30% in the United States, against 70% in France (see IRES 2000). Aligning French wages on United States productivity would have meant a highly recessive setback for wages and would have been very difficult to enforce, from a social standpoint.

The same study has no choice but to recognise the growth in precarious work. Its realistic observation is worth quoting : “Over the last decade, a multi-tier labour market has emerged, with enterprises keeping a core of employees on ‘‘typical’’ contracts with low turnover rates. At the same time, part-time work, work on fixed-term contracts and temporary agency work developed strongly – reflecting government incentives and the greater flexibility of such contracts. The share of employees on fixed-term contracts rose from 3.5 per cent in 1985 to 6.4 per cent in 1995 and that of part-timers from 10.6 per cent to 15.6 per cent. In addition, the number of people enrolled in labour market programmes has risen sharply. Turnover in the labour market is heavily concentrated on people with ‘‘atypical’’ contracts which may partly explain why France is among the countries with a relatively high job and labour turnover, but that this has not translated into high net job gains”.

Figure 4 shows the distribution of the labour force by different job status, and provides a clear illustration of the lower share held by standard jobs. This change is the outcome of jobs policy measures implemented over the years, and it is worthwhile at this point to recall the major stages in these.

1.2. A brief history of job policies

Contrary to the OECD presentation, job policy followed in France has come within the logic of neoliberal recommendations, independently of the succession of left and right wing governments. Let us recall when each was in power.

1981-1986 : left
1986-1988 : right
1988-1993 : left
1993-1997 : right
1997- ... : left

The real break came in 1983, when the left gave up pushing for a policy of a Keynesian type, two years after it came to power. The turn took the form of an unequal freeze on prices and wages, leading to a very marked slowdown in the progression in real wages, and setting off a rapid decline in the wage share in national income. But, after the legal working-week was lowered to 39 hours in 1982, afterwards an across-the-board and binding cut in working hours was abandoned in favour of a contract-based and decentralised process that would actually amount to a lasting freeze on average working time. Instead of reducing working time, a preference was given to rearrangements in it, in the form of a growth of part-time work.

This is also the period during which the first measures were taken in order to limit the period of payment of unemployment benefits. These led to a drop in the proportion of job seekers compensated and to a greater tapering-off in replacement incomes for early-retirees in relation to the reference wage.

From 1984 to 1986, we observed the development of policies aimed at target-populations, firstly young people, then the long-term unemployed. The objective of bringing young people into the labour market was to take the form of a series of internship measures or assisted contracts, supposedly promoting their entry into the labour market. In December 1995, by way of example, 190 000 young people were taking part in TUC (travaux d’utilité collective – community works programmes) inaugurated in October 1984.

In 1986, the right wing returned to power and was to privilege greater flexibility in manpower management and lower labour costs for young workers. We could clearly see the idea, dear to the OECD, whereby the origin of unemployment lay at least in part in the “rigidities” hampering labour market operations. The most symbolic measure was the elimination of administrative authorisation for economic dismissals (Acts enacted 3 July and 30 December 1986). According to employers, this measure was to have a positive impact to the tune of 400 000 jobs.

The 11 August 1986 ordinance on differentiated work would make it easier to resort to fixed-term contracts, temporary work and promote part-time work. Finally, the 19 June 1987 Act broadened possibilities for modulating working hours so as to enable firms to adjust work schedules to fluctuations in demand.

At the same time, the level of wage costs began to be presented when explaining unemployment, especially in terms of workers seen as having a lower productivity. The debate on the SMIC (minimum wage) and its impact on employment tended to come up time and again but a challenge to the minimum wage was excluded. Exemptions from social contributions were to bear the costs for the measures for reduced labour costs. Job grants in the form of exemptions with no training counterpart were to regain popularity, first of all in the direction of youth, and be generalised from there.

The 1988-1993 period was marked by the return of the left and a recovery of economic activity that finally ended with a deep recession in 1993. The major novelties were the implementation of the RMI (revenu minimum d’insertion – a social welfare measure) in 1988, then the establishment of the Contrat-Emploi-Solidarité (part-time jobs paid at the minimum wage, essentially by government) grouping together activities of community interest.

Job programmes in the private sector were reinforced, in the form of new special contracts. In January 1989, a measure was brought in exempting employer social security contributions for firms hiring a first employee. This benefit was soon extended to the 2^nd and 3^rd employees. In late 1991, a measure was brought in to lower labour costs targeted low-skilled young workers. Then, in January 1992, assistance became available to households for employment of an employee in the home.

In August 1992, a 30% cut in employer social security contributions was brought in for new part-time contracts. The rapid growth in part-time work was able to play a real part (alongside other factors) in a modification of the link between growth and employment in the recent period. On the other hand, the INSEE (Institut de la Statistique et des Etudes Economiques – Institute for Statistics and Economic Studies) Employment enquiry also shows the importance of involuntary part-time work, since 40% of part-time workers (mainly women) would prefer to work longer hours.

In July 1992, the unemployment insurance system was thoroughly overhauled, making benefits taper off much more quickly. This reform led to a drop in the proportion of unemployed receiving benefits, especially among young people.

In 1993, the right wing came back to power in a context of economic recession and rapid growth in unemployment. From 1 July 1993, employer contributions to family allowances were eliminated for salaries lower than or equal to 1.1 times the SMIC and halved for salaries between 1.1 times and 1.2 times the SMIC. The measure corresponds to a drop in labour costs amounting to almost 4% at the SMIC level and applies to over 3 million employees. This policy would be taken further over the years, within the framework of the five-year act of 1993, then after the 1995 presidential elections.

The left returned to power in the 1997 early legislative elections. It did not challenge the exemptions in social security payments whose budgetary cost reached 40 billion francs (i.e. 0.5% of the GDP) in 1998, for 5 million employees affected by this measure. But the left would distinguish itself above all by implementing the 35-hour week, and generalising a policy already underway with the Robien Act enacted by the previous government in 1996.

1.3. “Continuing to move ahead”

This short overview should suffice to establish that in practice, successive French governments actually abided by OECD strategy. And yet, the institution continues to speak out against rigidity factors, such as the minimum wage, the bargaining system, the tax and transfers burden, unemployment insurance and assistance payments, as well as an inadequate flexibility of working time and employment. In its 1997 study, the OECD recommends “continuing to move ahead” while recognising that “some of these recommendations do not have the support of the French authorities”. We can mention the most important of these, while keeping in mind the range of factors outlined above :

“ - increase wage and labour cost flexibility ;

- further reduce both the maximum duration and replacement rates for long-term unemployed. For low-income earners, relatively high replacement rates could reduce incentives to search for a job. In addition, job search controls and benefit sanctions should be tightened ;

- reduce lay-off restrictions for collective dismissals ;

- if the minimum wage were not reduced, continue with the general reduction in non-wage labour cost for workers at the low end of the wage scale ;

- continue with reforms, which favour a close co-ordination in the management of unemployment benefits, placement services and labour market programmes.

- accelerate annualisation of working hours, if needed with legal measures.

- pursue privatisation opportunities.”

The OECD position comes down to suggesting that even more of what has already has been done should be done. The only two exceptions bear upon early retirement and associated schemes that must be “scaled back” as they are “expensive in budgetary terms” and lead to a “low participation rate of older workers”. In the same vein, the OECD proposes to “reduce incentives to offer part-time jobs” to the extent that “a large number of part-timers want to work longer hours”. Although this position is acceptable in substance, it fails to take into account the important role played by these measures in reducing unemployment. Giving them up would only make sense if compensated by an across-the-board cut in working hours, something the OECD wants no part of. This means its position shows that from its standpoint the non-regulation of working time is more important than the course taken by the unemployment rate.

On other points, the OECD proves a poor political analyst. Of course, its formulations are very prudent with respect to the minimum wage” – “it might be difficult to lower it in the current circumstances” – but the suggestions fail to take into account the French political picture. So the constant desire to differentiate it “by age and region to prevent it from harming employment prospects for young people and low-productivity regions” overlooks the government’s attempt to implement such a policy in 1994 by bringing in a 20% lower minimum age for youth. But it came up against a mass movement, at times very violent, that led it to withdraw this plan.

Despite all its efforts, France still gets just as poor marks from the OECD. In the latest Jobs Survey evaluation, France is ranked 22^nd among the 25 countries studied : only Norway, Luxembourg and the United States do more poorly (OECD 1999, p. 51). Its follow-through of recommendations is only 20% with respect to the labour market reforms. Out of 15 specific recommendations in this field, France was said to have taken no action in 6 cases, that more action was needed in 6 other cases, and even that an opposite action was taken in the last 3 cases.

Could this be a dream ? How can we reconcile this general appreciation with the picture we have painted of employment policy in France, and its impact on the labour market ? Furthermore, the indicator used by the OECD is not very discriminating. A detailed examination (OECD 1999, p. 56) shows that the poor French pupil has lacklustre performance in terms of unemployment rate, but not very different from such countries as Germany, Greece, Switzerland, Italy, Austria and Denmark. This despite the fact that the latter countries had far more carefully followed OECD recommendations, if the agency is to be believed. All of this is preposterous, and this type of ranking would be swept away with the jobs upturn, bringing France to the forefront in terms of performances.

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14 May 01