France's troubled labor market

In 2016, Fran?ois Hollande staked his political future on creating more jobs, with unemployment stubbornly above 10%. Within months, his presidency was over. Writing in ‘Economics for the Common Good’ at the time, Jean Tirole called for urgent reform of employment policy. Following shock votes for Brexit and Donald Trump, he further worried that people’s fears for their jobs were fueling populist movements. Seven years on, we asked TSE’s Nobel laureate to revisit his analysis.

Unemployment has fallen dramatically since 2016, but it is still much higher in France than in northern European countries. It particularly affects 15–24-yearolds. Although there has been a strong decrease in recent years, the unemployment rate for this age group in 2022 was still 17.6%. We also need to significantly improve the employment of older people: the employment rate of 60–64-year-olds was 33% in 2020, compared with more than 60% in Denmark, Germany, and the Netherlands, and close to 70% in Sweden. Unemployment specifically penalizes those with poor education and training, and low-income urban populations. Labor market reforms, have done much to improve the employment situation. But many reforms should also target young people, through training and through a radical reform of our education system, from primary school to university, to bring it up to the level of other major nations.

DISCONTENT AT WORK

Another continuing cause for concern is the unhappiness of French workers. The strong opposition to the pension reform – even though French people retire earlier than in all other European countries – testifies to the negative relationship many citizens have with work.

This is partly due to a lack of professional mobility: it is natural for workers to change firms to take up new challenges, or to leave behind strained relationships. To facilitate mobility, and to match workers with suitable jobs, we must move beyond the idea that a permanent contract is a privilege to which workers should hang on.

Relationships between employers and employees are not peaceful, contributing to workers’ burnout. Many also feel insecure at work, whether they have unstable short-term contracts or, surprisingly, permanent contracts. This pessimism still pervades French society, crippling its ability to adapt and innovate.

“We must move beyond the idea that a permanent contract is a privilege to which workers should hang to.”

A COSTLY EMPLOYMENT POLICY

Every government invests in employment policy. The aim is to train workers, support the most vulnerable, and protect those who are trapped in a sector undergoing rapid technological and economic change. But France spends far more heavily in this area than its international peers.

The 30 years of growth that followed the Second World War (the Trente Glorieuses) enabled the creation of new jobs, often on permanent contracts, and the health of public finances allowed for government support. Over the past 40 years, the situation has been slowly deteriorating. Today, our labor market is still beset by a “perfect storm” of three key challenges:

• As with the rest of our social system, our public employment policy risks collapse if we fail to control public finances.
• Migrants represent both a cultural and an economic opportunity. We must welcome them as contributors to society and open the job market.
• The digital revolution will exacerbate the cost of inflexibility, as it increases the speed at which jobs are transformed. We must update complex labor laws designed for early 20th-century factory workers rather than for the new forms of labor

Article published in TSE MAG - Issue 25 - Fall 2023