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Compliance Study: France

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"...we pledge to carry out practical reforms, consistent with the specific situation in each of our countries, aimed at achieving a high level of employment and widely-share prosperity: these include tax and social system reforms to ensure that "work pays," particularly for the least well-off; lowering social security charges which place a burden on low-skilled jobs, in countries with high indirect labour costs; and improving public employment agencies."

Grade: 0

There is an increasing awareness in France that the structure of the labour market is not able to deliver the flexibility required to cope with the unemployment rate that has continued to trend upwards. It averaged 11.6% in 1995, 12.4% in 1996 and reached almost 13% at the start of 1997. The difficulty is not only the cyclical unemployment but perhaps more the structural unemployment.

At 12.4% the unemployment rate in 1996 was well below the 6.9% average for the G7. A closer look at the unemployment rate in France indicates that, in contrast to Germany, the problem is indeed due to low employment rates. In 1996, the labour force participation rate in France was 63.8% and quite far below the 66.1% average for the G7 and quite far below that in Germany. But the employment rate (proportion of working age population employed) at 55.9% was significantly lower than the 61.5% average for the G7 and far below that in Germany.

The right of centre government under Juppe had attempted to address the issue. Labour market measures were undertaken in 195 and 1996 targeting the employment of selected groups as well part time employment. Many of the measures had been introduced in the Five Year Law on labour, Employment and Training passed in 1993.

The government under Juppe met stiff political resistance to its fiscal measures and the government was taken over by the Socialists under Jospin on May 25 1997. The Socialists had promised to create 700,000 new jobs targeting youth and the long term unemployed. p> (a) Labour supply - Score: -1

There have been no significant measures targeted to promote entry into the labour force. However, in its election platform, the Socialists' party leader Jospin made several promises that would be likely to promote entry into the labour force.

The first was the promise to reduce the statutory working week from 39 to 35 hours without any loss in pay. In the longer term, the cost to employer's would likely be passed onto workers in the form of lower wage increases. However, in the short term, the prospect of an increase in the effective hourly wage rate would likely provide an additional incentive for entry into the work force.

The second was the promise to increase the minimum wage by up to 8% in July.

(b) Labour demand - Score: +1

Both the 1995 and the 1996 budget included measures to reduce the social security cost of hiring. There have been three measures.

The first two measures reduced social security contributions. The first was a general reduction in employers' social security contributions. The second was a reduction in employers' contributions for the first three new hires and for part-time employees. The Five Year Law also envisaged an extension of the employer exemption from paying social security for family allowance and health contributions for low income workers up to a multiple of the minimum wage. This multiple was to be raised each year from 1.1 times the minimum wage in 1993 to 1.33 times in October 1996.

The third measure was the employment initiative (which replaced the return to employment contract) which provided a subsidy to employers to retain employees. This measure was extended during 1996.

The total package was worth 67 million francs in 1995 and 93 million francs in 1996. These measures provided fiscal incentives ranging from 40% of labour costs for long-term unemployed, to 20% for part term

workers, to 12% for low income earners.

At the end of 1996, the government passed the Loi Robien. This provided a government subsidy for the part-time employment for firms that would otherwise lay off employees.

There have been a number of additional measures targeting youth unemployment.

First, in May 1996, some measures were introduced targeting support youth employment. These included a hiring bonus to support the youth apprenticeship program and an annual subsidy for youth employment. In December 1996, the government extended the five-year job contract scheme to youth under the framework of the government 's urban renewal plan.

Second, early in 1997, the government is expected to finalize plans for a scheme of nine-month work placements for those in higher education to be administered jointly by the government and the private sector. The scheme is expected to become operational in September and some 70,000 are expected to be given job placements in the first year of the scheme.

(c) Labour institutions - Score: -1

There have been no significant measures discernible on this commitment.

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