The Economist: "Down, Down" - Article Summary

In November, unemployment fell for the sixth month in a row in France. It is still extremely high though at 9.6% compared to the euro-zone average of 8.3%.Many economists believe that it can drop below 9% by the end of 2006. If this does happen, it would be the first time since 2002 that it was below this level.

There are many explanations for why this level is dropping. The main one though, is not economic growth. The economy only expanded by 1.5% in the first three quarters of 2005, and they are not expecting much growth in 2006. After a flat year in 2004, there were almost 60,000 jobs created in the non-farm private sector. A new two year contract that was introduced by Dominique de Villepin, the centre-right prime minister, has played a large part in this. This contract gives employers with less than 20 workers more flexibility. These certain employers have used this contract for about one in ten new jobs they create.

The second explanation is demographic. Even though France has one of the highest birth rates in Europe, its population is still aging. Many of the baby-boomers are beginning to retire; therefore the number of people needing a job is falling. Those coming to the labor market will outnumber those retiring by about 29,000. The biggest reason for the falling unemployment rate though, is social policy. Under the governments "social cohesion" plan, there was a huge rise in new subsidized jobs in late 2005. The official statistics body of France, INSEE, predicts that a total of 100,000 new jobs will be created in 2006. The private sector and bureaucracy will account for two-thirds of these. The remaining third will be state-subsidized jobs ranging from positions in voluntary organizations and town halls to schools and sports clubs.

Mr. de Villepin will probably claim credit for the better job figures, but many of the measures that have improved this rate were put in place by Jean-Louis Borloo, the "social cohesion" minister. The recent riots in the suburbs have put pressure on the government to deal with joblessness. There were about 425 vehicles that were burned on New Year's Eve; this number is considered relatively normal though. The most urgent agenda the government must attend to is getting residents of the public housing projects into work. At the same time, the government has clamped down on unemployment benefits. Many young people who have been unemployed for a very long time have been called in for interviews to be placed in jobs or job training.

The creation of jobs in the private-sector is the great missing element though. High minimum wage, high social charges for employers, and strict working-time rules are just a few of the obstacles that have caused such a problem in this sector. The new two-year job contract helps, but only for small businesses. To help combat this, President Chirac has mentioned shifting the financing of the benefit system away from the payroll tax. He has also talked about a value-added employers' charge, while others have talked of a social VAT. Many of President Chirac's past new-year's promises have not been carried out though, and with a presidential election in 2007, hardly anybody is holding out for a serious labor-market reform.

"Down, down." The Economist 7-13 Jan. 2006, 42-43.