The publications of a little reduction of the number of jobseekers during the 3rd quarter, from 3.49 million to 3.36 million and of the 1st growth estimation during the same period of time, i.e. 0.3%, as during the last two previous ones, have not surprised but have been accompanied with rather accommodating comments. These figures are consistent with the stagnation of both household consumption and industrial production in September. Enterprises are still investing in taking advantage of very low interest rates but it is still to be proved that they are productive investments and not only office buildings or malls. The second estimation of the economic growth, which will be published in some weeks will allow to see until which point goes the improvement of their financial situation. The self-financing rate during the 2nd quarter over-passed 100% which is without any precedent. A confirmation of this trend would reveal a new comportment of hoarding through indebtedness because this one has increased since the beginning of the year, which will not lead to jobs creation.
Fiscal and social measures decided for a year have allowed a household purchasing power increase but they mainly lead to an increase of their financial savings. Household too accumulate saving and don’t make long term commitments. The housing starts trend (-3,9% on one year in September) as the housing permits one (-5.9%) which constitute a good advanced indicator, show that the sector is not taking advantage of the very low interest rates offered by banks, to the opposite to the old real estate in big cities which is on a strong rise. Foreign exchanges are still bringing a negative contribution to growth (-0.4%) despite the so costly for public finances choices which aimed to increase enterprises competitiveness through a reduction of their charges. So, the persistence of a high unemployment level, despite its small recent reduction, is not surprising. With 8.5%, France unemployment rate is still above the euro-zone average and twice higher than in the major developed countries, the U.S, Japan, United Kingdom and Germany. Then, France has failed to reduce the massive unemployment which affects it.
During the last twenty years, four periods can be distinguished. Between 1997 and 2002, France has enjoyed its last strong growth period, a restoration of its public finances with a deficit ratio under 3%, a spectacular unemployment diminution (- 590 000 jobseekers), a significant increase of the purchasing power and a solid trade surplus for goods excluding energy. The most important economic measure which was applied during that period was the reduction to 35 hours of the weekly working time. It is today sharply denounced. If the conditions of its application, notably in the public sector, can be criticized, it is impossible not to make the connection between its adoption and the bright economic results obtained then regarding employment.
During the following period which goes until 2007 summer, growth and purchasing power slow but unemployment continues to fall ( - 460 000 jobseekers), which well demonstrates that the 35 hours week did not have in that matter, the negative consequences so frequently put forward. But this favorable environment was not put in profit to complete the restoration of public accounts. In some sectors, including the car industry, enterprises are launching themselves in a de-localization strategy and foreign direct investments, under the State passive attention. It was the wrong answer to globalization. Foreign exchanges excluding energy fell into deficit. The French economy is then confronted to the financial crisis without any rooms for maneuver.
The first measure taken by the new government in 2007 was the tax exemption for overtime. Costly for the budget, it was a paradox because it was an incentive, not for hiring new employees but to make them working more. Germany will adopt the opposite solution with wisdom: to encourage part-time employment which allows to avoid redundancies and to keep know-how inside enterprises. To the financial crisis and the deep recession which follows it will be added the euro crisis which will finish only in 2012 when Mario Draghi convinces financial market that he will do “whatever it takes” to save the European currency. France will have known a deep reduction of the purchasing power and a brutal rebound of unemployment (+890 000 jobseekers in five years). The State let the budget deficit to widening at an unprecedented level but that one was not the result of an increase of public expenditures with an anti cyclical purpose but from a large fall of its receipts. The choice made to encourage overtime shows then its complete inefficiency.
The exit from the crisis in 2012 is painful because France is confronted with a high public indebtedness and a large trade deficit. The strategic choice made at that time was to massively reduce enterprises taxes and social charges and to finance that transfer by an increase of taxes on household. It will reveal itself disastrous. That policy will have no consequences on the competitiveness of French enterprises and the trade deficit will remain heavy. France then knows the longest stagnation period in its history due to the pressure affecting purchasing power. Unemployment, instead of returning on a falling trend, the famous “curb inversion” will continue to increase (+495 000 jobseekers in five years), as a testimony of the failure of that policy. The rebound observed in 2017 is much more the consequences of external factors as the fall of oil prices and interest rates, than of the impact of the economic policy, which is not reversed and even questioned by the new appointed government in 2017.
External deficit persists, tax reductions are confirmed and the growth rebound, as INSEE has just confirmed, doesn’t last. France finds itself with a growth rate hardly superior to 1% in 2019 and nobody forecasts any acceleration in 2020. Unemployment stays at a very high level, even if for two years it has known a slight reduction (-124 000 jobseekers). The priority to the improvement of company margins is confirmed despite their already high level and “structural reforms” are launched whose purpose is to systematically question social benefits in favor of employees and tomorrow of retired people. The idea according to which it would be necessary to increase carriers duration and to rise retirement age is misunderstanding a job market major point: during the last 12 years, the increase of unemployment has been mainly due to people with an age superior to 50 years ( +589 000 between 2007 and 2019). The recent decisions in favor of the purchasing power will feed saving accounts so French people are anxious about their future. These “reforms” increase precariousness and produce a negative feeling generating anxiety which is bad for consumption and so for employment.
The mediocre results of the French economy and the high unemployment are the consequence of the wrong economic choices. To support supplementary hours when there are more than 3 million jobless doesn’t make any sense. To make more fragile the household social environment cannot produce any result in favor of growth. To postpone the retirement age when enterprises are only preoccupied by making their workforce younger will only lead to increase UNEDIC deficit. Failures in economic matters are not necessarily caused by external events. France is a good illustration of that.