Unemployment at 8.1%: "An unexpected result for the government"

Economist Mathieu Plane in 2017.Mathieu Plane is deputy director of the analysis and forecasting department of the French Observatory of Economic Conditions (OFCE), the center for economic conditions at Sciences-Po. He believes that with an unemployment rate down to 8.1% at the end of 2019, the lowest since 2008, France could end up closing a long period of mass unemployment started in the 1970s. The end of a particularism , compared to its European neighbors, which should not hide the fact that unemployment is no longer the only indicator to take into account when measuring the activity of a country.

Are you surprised by the magnitude of this drop?

Honestly Yes. We are not surprised by a decline but by its magnitude in a context of declining growth. This is an unexpected result for the government when growth, which had reached 2.4% in 2017, returned to its usual sluggishness in France, barely above 1%. Normally, such a performance just helps stabilize unemployment, not reduce it by 0.7 points over a year.

So there is a riddle to this drop?

We can list a whole series of explanations for this decline. First, there are the delayed effects of past policies to lower the cost of labor, with the CICE, implemented under Fran├žois Hollande, and above all the bonus of the double payment of 2019 with its transformation into lower contributions. We can also mention the slowing of the growth of the active population resulting from that of demography with a number of entrants on the labor market which decreases. For the first time since 2001, the balance of job creations in industry also returned to positive in 2018 – 7,900 net job creations in 2019 – and it therefore seems that the peak of deindustrialization is now behind us. The construction industry has also recovered, but taken separately, none of these factors alone had a decisive effect.

The government sees the results of its reforms in training, the liberalization of the labor market and the resumption of investment …

All of this can play a role even if the resumption of investment dates back to 2015 and the labor law has little influence on the volume of jobs but rather on their nature. The underemployment for people working part-time undergoes decreases a little and there is an inflection on the creation of jobs in CDI and a retreat of the interim. But without calling into question the overwhelming part of fixed-term contracts in the new employment contracts.

There are, however, two black spots: youth unemployment and the rise in the so-called "unemployment halo". How do you analyze them?

The former may have suffered from the sharp reduction in subsidized contracts over the past two years. As for the "halo" of unemployment, which designates people who want to work but do not appear in the statistics, ie 1.7 million people, its increase is counter-intuitive. Normally, when the job market is dynamic with a strong return to activity as it is currently, this halo should decrease.

However, it is not the case. Either it is structural and it would be the most annoying since it would assume that the distance from work is final for the most vulnerable. Either, and it seems more likely to me, the 90,000 more people included in the unemployment halo in 2019 are likely to end up in the statistics within a year. The goal of reaching 7% unemployment in 2022, which has never seemed so achievable despite the economic downturn, could then be compromised.

Should we worry that we manage to create as many jobs with almost zero productivity gains? Again, this is counter-intuitive …

In the long term, the decline in potential growth and productivity gains is obviously problematic for the creation of sustainable and quality jobs. This is also a concern for the future of pensions: in its projections, the Pensions Guidance Board forecasts average productivity gains of 1.3% per year. We are currently close to zero! There is a French paradox: we are increasing structural and fiscal reforms with a high level of investment and yet we are gaining very little market share. While the short-term results are undeniably better, the long-term trajectory remains subject to many uncertainties.

Can we imagine the unimaginable, that is to say the end of mass unemployment in France?

The French exception in this area is disappearing and in the absence of a major recession caused by a new financial crisis in the coming years, yes, that seems possible. France then risks finding itself in the situation which is already that of many industrialized countries marked by the accelerated aging of their population. The main problem is no longer to find a job, but to find the workforce that can be quickly mobilized. However, wages there increase only moderately and there remains a share of precariousness and poverty which is not absorbed by this cruel need for labor. In societies where life courses are much less uniform and much more fragmented, the unemployment rate continues to be a key indicator of a country's economic activity and health. But it is no longer the only one, far from it, and must be supplemented by new approaches like that of this halo of unemployment that would never have existed at the time of the Thirty Glorious Years.

Christophe Alix