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Macron’s labour market changes begin to bear fruit

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Via Financial Times

Emmanuel Macron is the latest in a decades-long succession of presidents to seek to tackle France’s persistently high unemployment — but as he enters the second half of his five-year mandate, labour market data offer hopeful signs.

The French economy is proving more resistant to the global economic slowdown than more trade-dependent nations such as Germany, and economists surveyed by Reuters expect Wednesday’s figures for third-quarter gross domestic product to show a 0.2 per cent expansion.

That is reflected in France’s labour market.

Joblessness, while still the highest in the EU after Italy, Spain and Greece, fell to its lowest level in a decade in the second quarter of 2019: 8.5 per cent of the workforce, or 8.2 per cent excluding France’s overseas territories. In another hopeful sign, the previously pervasive use of temporary contracts has been declining since early 2018.

Chart on France's unemployment targets

“Chances are high that thanks to Macron’s labour policies France looks much better by 2022,” said Florian Hense, economist at Berenberg, an investment bank. 

Stéphane Carcillo, head of the jobs and income division at the OECD, said of Mr Macron’s target to reduce unemployment to 7 per cent by 2022 that “it’s not impossible”. 

“His plan is more systematic and consistent than previous governments,” he said. “So many aspects of labour codes are being tackled at the same time.”

Mr Macron has made long-term contracts less onerous for employers by capping the cost of unfair dismissal, and reformed taxes and benefits to make low-wage work more attractive. 

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He is also making short-term contracts more costly for some employers, accelerating training and skills initiatives including a five-year, €15bn scheme to train long-term and young unemployed, tightening unemployment insurance with reduced payouts for high earners and requiring a longer work history to claim benefits. He plans to replace 42 pension schemes with a single system and push the French to work beyond the retirement age of 62.

While an OECD report published earlier this year said it was too soon to conclude that his reforms were responsible for the drop in unemployment, they have led to changes in the French labour market. 

France now has a more flexible market for permanent workers in terms of the rigidity of their employment protection than Germany, Italy and Sweden, according to the OECD, and the second-lowest effective tax rate at the minimum wage level in the OECD after Japan. 

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The result, France’s labour minister Muriel Pénicaud said, is that “many jobs, particularly permanent ones, have been created because companies, especially small ones, are no longer afraid to hire”.

But the remaining problem for Mr Macron is not that companies are afraid to hire — instead, they often cannot. 

Despite 2.4m people still being out of work, the government estimates that up to 400,000 job vacancies remain unfilled. One reason is that French unemployment benefits can sometimes be more attractive than work; another is a mismatch between workers’ skills and available jobs.

An estimated 20 per cent of people sometimes get more in benefits than their old salary paid.

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Meanwhile, in a recent survey by the European Central Bank 27 per cent of French small and medium businesses said a lack of skilled labour was the biggest challenge they face — a situation that has worsened since 2016 in the manufacturing sector, according to the European Commission. 

Mr Macron has pledged to tackle both problems in the second half of his presidency, with plans to trim unemployment insurance provisions and accelerate efforts to equip workers with the skills employers want.

That will be easier said than done, though. As with so many French presidents before, Mr Macron’s reforms have faced opposition both from trade unions and employers. 

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Jacques Chirac was forced to abandon a proposal for youth employment law reforms in 2006 after student protests. Nicolas Sarkozy ran for office in 2007 on a pledge to lower unemployment to 5 per cent, only to see it hit a 12-year high of 9.5 per cent as he faced re-election in 2012. And in François Hollande’s 2016 bid to tackle joblessness he introduced state-paid contracts which artificially brought down unemployment at the expense of the public deficit. 

“French presidents have all had beautiful proposals for labour reforms, but in the end, they drop them,” said Daniela Ordóñez, chief French economist at Oxford Economics.

To beat his predecessors’ record, Mr Macron will need France’s economy to continue to grow. That is not a sure thing given the growing threat that US-China trade tensions and a possible German recession pose for economies that have hitherto remained relatively robust.

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“For now, everything is going well,” said Ms Ordóñez. “But there is a lot going on in the world.”

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