With a rate of 7.4%, unemployment is at its lowest level since 2008. But what can we learn from this figure? Two economists, Anne-Sophie Alsif (chief economist at BDO) and Yannick L’Horty (professor at Paris-Est University), answered questions from readers of the WorldMonday, February 21.
Is the unemployment rate really a relevant indicator of a country’s economic health?
Yannick L’Horty (YH): The persistence of unemployment at a high level, between 8% and 11%, since the end of the 1980s was certainly not an indicator of economic prosperity.
However, unemployment is a stock indicator which is the result of an accumulation of labor market inflows and outflows, between unemployment, employment and inactivity. These flows are the best indicators of economic health at a given period, in particular the flow of hirings and dismissals.
Anne-Sophie Alsif (A.-S. A.) : Yes, because its evolution is linked to the rate of economic growth. Nevertheless, the current context is particular, due to the nature of the crisis, which was health and not economic.
Is there a proven link between the drop in youth unemployment and the increase in the number of apprenticeship contracts?
Y. H. : The number of apprenticeship contracts has more than doubled over the past three years: 318,000 contracts in 2018, 650,000 in 2021. This is a massive increase, which has very beneficial effects on the number of young unemployed people in meaning of the International Labor Office (ILO), since young people on apprenticeship contracts are employees and are therefore actively employed.
Each time a young person in initial training enters an apprenticeship, he increases the denominator of the unemployment rate and therefore lowers it. The recent sharp drop in youth unemployment in France is linked to the spectacular rise in apprenticeship.
A.-S. A. : Yes, there is a link. The number of apprenticeship contracts reached a record in 2021 amounting to 718,000, almost all (97%) being in the private sector, according to the Ministry of Labour, Employment and Integration. The economic recovery, the strong global demand and the positive results of “whatever it takes” favor the massive recourse by companies to this type of contract, in a context where it is difficult to find labor .
In addition, many of these contracts can lead to a permanent contract and allow real integration into the labor market. The development of these contracts is very effective in combating unemployment among the under-25s.
Is the number of apprenticeship contracts in 2021 650,000 or 718,000?
Y. H. : The number initially given by the government was 650,000 and it was modified to be revalued to 718,000, an absolute record, as was already the number of 650,000.
Does the spectacular development of apprenticeship have an impact on current unemployment figures? If so, can it be measured?
A.-S. A. : Yes indeed. We can measure it by looking at the evolution of the youth unemployment rate, which has fallen. It is interesting to look at the longer term, when the apprenticeship ends, if there is conversion into an employment contract. It depends on the economic situation and the sectors of activity, but France is posting good results.
Y. H. : The error would be to count one less unemployed person for each additional apprentice. Apprenticeship contracts have a positive effect on the number of unemployed, but they also exert a pull effect on the number of inactive people. Young students who enter into an apprenticeship contract are no longer counted as inactive and increase the number of employed workers without reducing the number of unemployed.
Among the biases of the unemployment figures, is there not also the “whatever the cost”? With a number of companies on state drip, isn’t there a resurgence of “zombie companies” and a situation that is regarding to worsen as soon as the aid is withdrawn?
Y. H. : The pace of exit from emergency measures is clearly an issue for public policies and it can potentially change the situation in terms of employment and unemployment trends. But, for the moment, it is clear that the gradual decline in aid has gone hand in hand with an exceptional improvement in employment figures and a drop in unemployment.
The government’s choice was to relay the emergency measures through the recovery plan, which has a massive character, with 100 billion euros injected into the economy. Then it is the investments of the France 2030 plan that will perpetuate public support for the activity. The succession of these measures limits the risk of aggravation of the situation linked to the end of the crisis.
A.-S. A. : There are, indeed, the positive consequences of the “whatever the cost” policy in these good figures. But I don’t think that translates into a real bias in the unemployment numbers. The economic policy of aid during the pandemic has been well targeted and has helped to preserve the productive capital of companies, so that they benefit from the recovery when the crisis is over. There is always a share of “zombie companies” even in times of non-crisis.
Aid has started to fall in many sectors and there has been a drop in business failures. At the end of January 2022, the number of defaults stood at 27,792, a drop of 7% compared to January 2021, according to the Banque de France. Strong economic growth and demand offset the end of aid.
Is this fall in unemployment largely explained by an increase in precarious part-time jobs?
A.-S. A. : No, in the figures, we see more of an increase in permanent contracts. These are therefore permanent jobs, and this is explained by the nature of the recovery. We had a supply and demand shock, but it was not related to an economic crisis. Job creation figures in the market sector were dynamic in 2019. In fact, in a context of strong economic recovery despite an 8% recession in 2020, it is necessary to create productive jobs to respond to the strong recovery of Requirement. Precarious and part-time jobs were the first affected at the start of the crisis. The CDI creation indicator shows the solidity of the recovery.
Is it possible to compare the balance sheets of the Sarkozy, Hollande and Macron five-year terms in terms of unemployment?
Y. H. : Historically, the long inflections of unemployment in France are not fixed on the agenda of the quinquenniums. The labor market turned around in 2008 under the effect of the great recession, more than a year following the election of Nicolas Sarkozy. The unemployment rate rose in successive stages until 2015. Then it stabilized and began to decline before the end of François Hollande’s mandate.
Under the mandate of Emmanuel Macron, the unemployment rate then continued to fall continuously until the first confinement before starting a brutal scissor movement, upwards in 2020 then downwards in 2021 before almost returning at its initial point, and to continue its downward movement that began in 2015. Overall, the changes observed within each five-year period largely dominate the movements observed between the five-year periods.
A.-S. A. : It is difficult to make comparisons, because the evolution of the unemployment rate is linked to economic growth. But we can note the policies in terms of competitiveness of companies developed in recent decades through the establishment of the CICE or the industrial policy component of the recovery plan and the good figures for apprenticeship.
From when can the fall in unemployment have an effect on wages?
Y. H. : On the one hand, wages are very rigid in France, on the rise and even more on the fall. On the other hand, there is an impressive reserve army of job seekers who are actually looking for work. The fall in unemployment may not produce upward pressure on wages before reaching a level corresponding to full employment, probably situated around an unemployment rate threshold of 5%.
A.-S. A. : The fall in the unemployment rate has an effect on wages when there is a shortage of labor and the supply of labor is lower than the demand. We see it in certain sectors, such as personal assistance, construction or even accommodation and catering where wage increases have been negotiated. Nevertheless, the labor market in France is quite rigid, which explains why we are not seeing a general increase in wages despite inflationary pressures.
