By Robert Boyer, Director of Studies at EHESS and the Institut des Amériques

Speech at the “European Political Economy and European Democracy” seminar on June 23, 2023, at Sciences Po Paris, as part of the ‘Théorie et Economie Politique de l’Europe’ seminar, organized by Cevipof and OFCE.

The aim of the first study day of the Theory and Political Economy of Europe seminar is to collectively engage in a work of overall theoretical reflection, following on from the thematic sessions of 2022, by continuing the multidisciplinary spirit of the seminar. The aim is to begin outlining the contours of the two major blocks of European political economy and European democracy and to identify the points of articulation between them. And to prepare for multidisciplinary writing with several hands.

An apparent paradox

During the various and rich interventions pointing out the shortcomings, dilemmas, and contradictions that characterize the processes of European integration, a central question seems to emerge:

“How has a politico-economic regime in permanent disequilibrium, which has become very complex, been able, until now, to overcome a large number of crises, some of which threatened its very existence?”

A brief review of the current situation is enlightening and makes it more necessary to seek out the factors likely to explain this resilience, which never ceases to surprise researchers and specialists, foremost among them many economists. In the face of a succession and accumulation of poly-crises and rising uncertainties, is it reasonable to anticipate that the European Union (EU) will continue its current course, protected by the mobilization of the processes that have ensured its survival, not least thanks to the responsiveness demonstrated by both the European Central Bank (ECB) and the European Commission since 2011?

Baroque architecture full of inconsistencies

The various speakers highlighted many of them:

• The European Parliament is a curiosity: it is an assembly with no fiscal powers. Would giving it this power be enough to restore the image of democracy on a European scale?
• The EU issues a common debt even though it has no direct power of taxation: isn’t this a call for an embryonic federal state? Is there a political consensus on this path?
• This debt corresponds to the financing of the Next Generation EU plan, which recognizes the need for solidarity with the most fragile countries, in response to a common “shock” that does not lend itself to the moral hazard so feared by the frugal countries of the North. Yet it is the result of an ambiguous compromise, with two opposing interpretations: an exception that must not be repeated for the North, and a founding, Hamiltonian moment for the South.
• It is not very functional or democratic for the European Parliament to vote on Community expenditure, but for national parliaments to vote on revenue.
• Does it make sense to have a multiannual program adopted by an outgoing assembly of the European Parliament, which will then be binding on the next one?
• The ceiling set for the European budget limits the financing of European public goods, which should compensate for and go beyond the limitation on the supply of national public goods in the application of the criteria governing national public deficits and debts.
• At the European level, the quest for more democracy tends to focus on the question of political control over the Commission and the ECB, whereas social democracy has in the past been a critical component in the legitimacy of governments at the national level.
• The same applies to the question of corporate governance in Europe, a forgotten issue on the European agenda that is regaining a certain interest in the face of the transformations brought about by digital technology and the environment.
• Competition policy is often perceived by economists as one of the Commission’s key instruments since it is an integral part of the construction of the single market. Yet legal analysis shows that competition is not a categorical imperative, defined finally, but a functional concept that evolves over time. So much so, that the Commission can declare that today it is at the service of the environment.
• The Commission is usually criticized for its role as a defender of the acquis, its taste for excessive regulation, its technocratic approach, and its inertia. And yet, since 2011, it has continued to innovate in response to successive crises, to the point of having relaunched European integration.
• The ECB was founded as the embodiment of an independent, typically conservative central bank, with a monetarist conception of inflation. And yet, without changing European treaties, the ECB has been able to innovate and effectively defend the Euro.
• The EU Court of Justice and national constitutional courts do not have the same interests and legal conceptions, but so far, no head-on conflict has produced a blockage in European integration. Is this sustainable?
• Is the distribution of competencies, fixed by the treaties and de facto adjusted as problems and crises arise, satisfactory and up to the challenges of the industry, the environment, public health, and solidarity in a dangerous and uncertain international environment?
• The “European Constitution” is not a constitution, because integration has proceeded via a series of international treaties. How can we explain the fact that these treaties have been imposed when member countries could have coordinated through the OECD, EFTA, the IMF, or ad hoc agreements (European Space Agency, Airbus, Schengen) with no overall architecture?

Reasons for surprising resilience

We need to identify the factors that can account for the perseverance that lies at the heart of continental integration and ask ourselves whether they are sufficiently powerful to overcome the current multi-crises.

• From the outset, the project was a political one, aimed at halting Europe’s decline in the wake of the two world wars. But in the absence of political agreement on a common defense, the coordination of economic reconstruction was seen as a means to this end. In this respect, Russia’s invasion of Ukraine has strengthened ties between governments, even if it means inverting the hierarchy between geopolitics and economics and bringing back to the forefront the possibility of Europe as a power.
• Conflicts of interest between nation-states are at the root of a succession of crises, which are overcome by ad hoc compromises that never cease to create further imbalances and inconsistencies, which in turn lead to another crisis. In a way, the perception of incoherence and incompleteness is a recurring feature of European construction. However, the configuration can become so complex and difficult to understand that it can overwhelm the inventiveness of the collectives that are the various EU entities and their ability to coordinate. By way of example, a genuine EU macroeconomic theory has yet to be invented, and this is a major obstacle to the progress of integration.
• European time is not homogeneous. Periods when new procedures are put in place after a breakthrough give the impression of bureaucratic, technocratic management at a distance from what citizens are experiencing. By contrast, open crises forbid the status quo, as the very existence of institutional construction is at stake, with the stratification of a large number of projects and their incorporation into European law. This experience of trial and error is the breeding ground that enables the Commission, for example, to devise solutions to emerging problems. As a result, the equivalent of an organic intellectual seems to have emerged from this collective learning over an extended period. This is one interpretation of the paradoxes mentioned above.
• European Councils, the Court of Justice, the ECB, and the European Parliament all play their part in this movement, but it is undoubtedly the European Commission that in a sense represents the European, if not the general, interest. The fact that it has the power to initiate regulations and manage procedures gives it an advantage over other bodies. Indeed, many governments would be satisfied with inter-state negotiations, with no common ground to build on, and would go it alone. Failure to find a compromise solution would mean the simple disappearance of the EU. Similarly, without the “whatever it takes” approach, the ECB would have disappeared with the Euro. The major crises offer a strong incentive to move beyond dogmatic posturing in favor of a re-hierarchization of objectives and the invention of new instruments.
• Finally, there are two sides to the proliferation of regulations, procedures, and European agencies attached to the Commission. On the one hand, they give rise to the diagnosis of poorly controlled management and the harsh judgments of defenders of national sovereignty. On the other hand, they are also factors in the reduction of uncertainty and the creation of regularities that coordinate expectations in a context where financial logic generates bubbles and macroeconomic instability.  In a way, a certain redundancy in a myriad of interventions is a guarantee of resilience. The European Stability Mechanism (ESM), for example, was a way of circumventing the ECB’s delay in recognizing the need for vigorous intervention. So the complexity of the EU can also mean redundancy and resilience.
• Political power plays a crucial role in the development of European institutions. It intervenes in the framework of councils and summits. So far, in the national political arena, governments favoring further integration have prevailed: this is sometimes one of the only markers of their policy that survives the various periods. As a result, a collapse of the EU could mean the loss of their credibility. It would be dramatic for a government to be held responsible for the failure of a project that has been built up over decades. This is perhaps a hidden source of the permanence of European institutions. What is more, “Brexit” far from marking the end of the EU has rather closed ranks, especially as the expected benefits for the UK have not manifested themselves. Beware, however, that the polarization and division of societies between the winners and losers of trans nationalization has favored the breakthrough of parties defending strong national sovereignty, i.e. a countertrend that forbids prolonging the hypothesis of a lasting hegemony of pro-European parties.
• Finally, the succession of financial crises, the return of pandemics, the harshness of the confrontation – not only economic – between the United States and China, the growing awareness of the environmental emergency, and the installation of a new inflation generated by recurring scarcities, which risks being aggravated by the transition to a war economy, are all factors in a dual awareness. On the one hand, common interests tend to outweigh disagreements between member countries. On the other hand, each of them carries little weight in the confrontation with the United States, which has become openly protectionist, and China, with its dynamism in emerging productive paradigms. The EU needs to be a geo-economic and political player in its own right. This explains the Commission’s activism since Covid-19. Citizens have benefited from this new impetus, with a common strategy on vaccines, for example. For their part, the governments of the most fragile economies have benefited from European solidarity, which has counterbalanced the principle of regional competition.    

Historical bifurcation, polycentric governance, or nationalist withdrawal?

The processes described above can recombine to form a wide variety of trajectories. Prediction is not possible, as it is the strategic interactions between collective actors that will determine how to overcome the EU’s various crises. It is possible to imagine three more or less coherent scenarios.

• Towards an original federalism disguised by a myriad of technical coordination procedures

This first scenario is based on three central assumptions. Firstly, it marks the end of reliance on neo-functionalism, whereby governments must be the servants of the necessities imposed by economic interdependence between nation-states (figure 1). The sphere of politics pursues its objectives, even if governments must contend with economic logic. Secondly, it draws the consequences of technological, geopolitical, health, and environmental transformations that threaten the stability of societies and the viability of their socio-economic regimes. Pooling resources increases the chances of success for all participants in European programs. Finally, this first scenario extends the trends already observed since the outbreak of the pandemic.

As far as the word federalism has a repulsive effect on public opinion, which is influenced by populist nationalism, the practice of enhanced cooperation does not have to be accompanied by an appeal to the federalist ideal. Instead, skillful rhetoric must convince citizens that the EU ensures their protection and opens new common goods. These advances in no way subtract from the social, economic, and political rights guaranteed at the national level. Charismatic politicians must be able to resist anti-EU rhetoric that feeds on the relative powerlessness of national authorities overwhelmed by transnational forces beyond their control.

• Adapting polycentric governance at the margins, far from a Europe of power

This second scenario, on the other hand, assumes that the current period will be one of continuity with the long-term trajectory of European integration. The polycentrism of EU entities is a vector of pragmatic adaptability to emerging issues, without the need to centralize power in Brussels, as suggested by the diversity of European agency locations. Trial and error, the multiplication of ad hoc procedures, and the possible use of enhanced cooperation on issues involving a fraction of member countries are all sources of adaptation in the face of the repetition of events potentially unfavorable to the EU.

This considers the fact that negotiating new European treaties seems a perilous mission, that public opinion judges the EU on the basis of its contribution to the well-being of its populations rather than the transparency and coherence of its governance, and that an imperial conception is illusory. One might be tempted to invoke a form of catallaxy applied not to the economy and the market, but to the political sphere: the interaction of highly varied processes, without central authority, eventually leads to a roughly and provisionally viable configuration. The English expression “muddling through” aptly captures this pragmatism, marked by the renunciation by public decision-makers of the need to spell out an objective and a goal, if only to persevere in being.

Success is not guaranteed. Firstly, past successes are no guarantee of their continuation into the future. Secondly, there is no guarantee that a pragmatic solution will be found in the face of an avalanche of unfavorable events since the affirmation of an objective may prove to be a necessary condition for lifting the prevailing uncertainty as to the outcome of both institutional and economic crises. Last but not least, how can we politically legitimize an order whose logic and nature elude decision-makers? Isn’t this powerlessness the breeding ground for populist voluntarism?

• National and European elections: a nationalist majority redesigns a different Europe

This third scenario is based on an analysis of changes in the objectives of government following recent elections in Europe. Both in the South (Italy) and in the Scandinavian countries (Finland, Sweden, Denmark), coalitions have come to power dominated by parties opposed to immigration, defenders of national identity, and, in short, reluctant to delegate new powers to the EU. In this, they join the authoritarian, nationalist governments of Central Europe (Hungary, Poland). In the European Parliament elections of 2024, could this movement result in the loss of a majority in favor of the EU’s current policies, to the benefit of a new majority bringing together nationalist parties that are very diverse, but share the same obsession: to block the extension of EU competences and repatriate as many of them as possible to the national level?

Russia’s war against Ukraine has brought the imperative of defense to the fore, an area in which the EU has made little progress. Does not this mean that NATO is becoming central to the political organization of the old continent, to the detriment of the economic objectives pursued by European integration?   

These hypotheses, derived from the 23 June 2023 CEVIPOF and OFCE meeting?  call for a follow-up, as the questions to be clarified are so many and quite difficult indeed. Cross-disciplinary analysis is more necessary than ever.

By Odile Chagny, IRES, Sabine Le Bayon, Catherine Mathieu, Henri Sterdyniak, OFCE

Most developed countries now have a minimum wage, including 22 of the 28 EU countries. France has long stood out for its relatively high minimum wage, the SMIC. But in 1999, the United Kingdom introduced a minimum wage, and the British government’s goal is to raise this level to 60% of the median wage by 2020, which would bring it to the level of France’s SMIC and among the highest-ranking countries in the OECD. More recently, in 2015, Germany also introduced a minimum wage.

Note that gross pay is a legal concept. What matters from an economic point of view is the cost of labour for a firm as well as the disposable income (including benefits and taxes) of a household in which employees earn the minimum wage.

In OFCE Policy Brief no. 34 we present a comparison of the minimum wages in force in 2017 in these three countries, using standard cases, from the viewpoint first of the cost of labour and then with respect to employees’ standard of living.

It appears that the cost of labour is slightly higher in Germany than in France, and much more so than in the United Kingdom, and that the reforms announced in France for 2019 (reducing contributions) will strengthen France’s competitive advantage vis-à-vis Germany. The cost of labour at the minimum wage is therefore not particularly high in France (Table).

With regard to disposable income, a comparison of different arrangements for working time and family situations highlights different logics in the three countries. In Germany, the underlying rationale is to protect families from poverty, regardless of the parents’ working situation. In France, in contrast, a family with two children has to have two people working full-time at the SMIC to escape poverty, as the tax-benefit system seeks to encourage women’s integration into the labour market. France is thus the only one of the three countries where a mono-active family with two children, one of whose parents works full-time at the minimum wage, falls below the monetary poverty line (Figure).

From the point of view of the relative position of minimum wage earners in relation to the general population, our study highlights the rather favourable situation of the United Kingdom. The living standard there is comparatively high: all the families considered in our typical cases have a standard of living above the poverty line, on the order of 30% higher for a family where both parents work full-time at the minimum wage. The gain from taking up a job is, as in France, high, while it is low in Germany in all the configurations.

Finally, our analysis is contributing to the debate about the establishment of a Europe-wide minimum wage. A policy to harmonize the minimum wage in Europe, as this is conceived by the European Federation of Trade Unions and supported by France, cannot be thought of solely in terms of labour income, but also needs to take into account the goals targeted in terms of living standards, especially for families.

By Guillaume Allègre, @g_allegre

The lack of take-up of France’s RSA income supplement benefit is often invoked as an argument for reforming the system for assisting people on low incomes (such as a Universal Income or establishment of a single social benefit that would merge the RSA, the in-work Prime d’activité benefit and Housing benefit). According to the CNAF, the lack of take-up of the base RSA benefit (RSA-socle) is 36% (CNAF, 2012). To arrive at this estimate, the CNAF relies on a quantitative survey conducted over the phone with 15,000 households selected from their tax returns.The RSA quantitative survey was specifically designed to replicate an eligibility test for the benefit. However, some households who are ineligible for the RSA claim they are benefitting from it. This category represented 524 households in the survey, i.e. 11% of the beneficiaries. This could result from a reporting error at the time of the survey, or from an approximation of the survey’s eligibility test. In any case, the existence of this category shows that it is difficult to estimate the lack of take-up of a benefit using a survey, even a specific one. In addition, the Secours catholique association estimates the lack of take-up of the base RSA at 40% (out of all the households they encountered in 2016) [1].

There is another way to estimate the lack of take-up of the RSA. Recently, the INSEE and DREES have opened up access to the INES micro-simulation software. The INES can be used to simulate the socio-fiscal legislation by using the ERFS (Survey of Tax and Social Income). The ERFS is based on tax declarations; the survey – based on administrative data – is therefore very exhaustive (households are required to report their income every year). The ERFS, however, has limitations: it concerns only so-called ordinary households. It excludes people who do not have a residence (the homeless) and people who live in institutions (army, retirement homes, etc. [2]). The survey field is metropolitan France. The tax returns are annual, but the resource base of the RSA are quarterly revenues, which implies, to simulate the RSA, rendering income “quarterly” on the basis of ad hoc assumptions.

According to the simulation done on the INES (2015 legislation), the number eligible for the base RSA in the fourth quarter of 2015 should be around 2,000,000 households, while according to the CNAF the actual number of beneficiaries of the base RSA (RSA-socle) in December 2015 was 1,720,000[3]. According to the ERFS survey (and microsimulations), the lack of take-up of the base RSA would be 14%[4].

So is the lack of take-up of the base RSA 14% or 36%? The truth undoubtedly lies in between, but at what level? The lack of take-up of housing benefits is estimated at 5% (Simon, 2000). But the two benefits (RSA, housing benefits) have similar target groups. The lack of take-up of the RSA is certainly higher than that for housing benefits (the target population is poorer, the administrative procedures are more extensive for the RSA). On the other hand, the difference between 5% (estimated lack of take-up for housing benefits) and 36% (lack of take-up estimated by CNAF for the RSA) is difficult to explain.

To cite this note: Guillaume Allègre (2018), “France’s RSA income support: 35% lack of take-up?”, OFCE Le Blog, January.

[1] Source: 2017 report by Secours catholique : https://www.secours-catholique.org/sites/scinternet/files/publications/rs17_0.pdf

[2] But this is not important for the RSA as people over age 65 are eligible for another means-tested benefit, the ASPA.

[3] Base RSA + Base RSA and RSA activité in-work benefit, metropolitan France. CAF+MSA Sources : http://data.caf.fr/dataset/foyers-allocataires-percevant-le-revenu-de-solidarite-active-rsa-par-caf

http://statistiques.msa.fr/wp-content/uploads/2017/01/Situation-du-RSA-au-regime-agricole-a-fin-2015.pdf

[4] This result varies by a few percentages depending on the year, which shows that the model is – like any model – imprecise. The INES team (INSEE-DREES) considers that the model cannot be used to measure the lack of take-up, in particular because the ERFS does not capture very low incomes well (the estimated lack of take-up using the INES would thus underestimate real non-take-up). Historically, the ERFS is not considered very good for estimating the eligibility for the base RSA. It is true that as RSA beneficiaries are by construction not taxable, they do not risk a penalty in case of misrepresentation. This problem has been solved (partially) by using pre-filled declarations.

By Léo Aparisi de Lannoy and Xavier Ragot

The return of growth cannot eradicate the memory of how the crisis was mismanaged at the European level economically, but also socially and politically. The divergences between euro area countries in unemployment rates, current account balances and public debts are at levels unprecedented for decades. New steps in European governance must aim for greater economic efficiency in reducing unemployment and inequalities while explaining and justifying the financial and political importance of these measures in order to render them compatible with national policy choices. The establishment of a European unemployment insurance meets these criteria.

The idea of a European mechanism for unemployment compensation is an old idea dating back to at least 1975. The idea is now being extensively debated in Europe, with proposals from Italian and French economists and policymakers and studies conducted by German institutes, with the latest OFCE Policy Brief offering a summary. The possibility is even being mentioned in communications from the European Commission. The Policy Brief describes the European debates, as well as the system in place in the United States.

The European unemployment insurance mechanism presented in this note aims to finance the unemployment benefits of countries experiencing a severe recession and draws on the US experience to do this. A programme like this would constitute a second European level, supplementing the different national levels of unemployment insurance. It would help provide the unemployed support in countries hit by a deep recession, which would also contribute to sustaining aggregate demand and activity while reducing inequality in the recipient countries. It is also consistent with a reduction in the public debt. This mechanism would not lead to permanent transfers to countries that are not carrying out reform, nor to unfair competition or the transfer of political powers that are now covered by subsidiarity. As in the case of the United States, it is consistent with the heterogeneous character of national systems.

To give an order of magnitude, an insurance system that is balanced over the European economic cycle and involves no permanent transfers between countries would have boosted growth in Spain by 1.6% of GDP at the peak of the crisis, while Germany would have received European aid from 1996 to 1998 and from 2003 to 2005. France would have experienced a GDP increase of 0.8% in 2013 thanks to such a system, as shown by the simulations conducted by the European teams.

For the complete study, see: Policy Brief de l’OFCE, no. 28, 30 November 2017.

By Pierre Madec and Xavier Timbeau

This evaluation of Universal Basic Income (UBI), the flagship proposal of French presidential candidate Benoît Hamon, highlights a potentially important impact of the measure on the living standards of the least well-off households and on inequalities in living standards. If implemented, a universal basic income would have the effect of making France one of the most egalitarian countries in the European Union. In return, the “net” cost of the programme could be high, around 45 to 50 billion euros. Given the measure’s cost, financing it through an income tax reform could make the French socio-fiscal system even more redistributive, but would lead to a considerable increase in the marginal tax rates borne by the wealthiest households.

By making it one of the flagship proposals of his election programme for the presidency, Benoît Hamon has revived the debate around a universal basic  income (UBI). It is a radical project, the subject of numerous controversies (see, for example, Allègre and Sterdyniak, 2017), so the quantification of the programme is needed. Starting from Benoît Hamon’s proposal, which has been significantly modified in recent weeks, we attempt here, using a number of important assumptions (total or partial individualization, dependence on other social benefits) to make an initial evaluation. The idea here is neither to enter into the debate as to whether the modalities of application chosen are relevant, such as the exclusion of pensioners, nor to judge how close the proposal in its present form comes to an ideal of universality. Rather the aim is to avoid this type of debate and to qualify and quantify the effects of the implementation of the UBI as proposed by the presidential candidate.

The latest version of the first step in the Universal Basic Income can be summarized as follows: “A basic income corresponds to a rise in net income that starts at 600 euros for people without resources and then disappears at 1.9 times the minimum wage (SMIC).”

Put like this, the proposal is for a differential allocation making it possible not to give rise to an artificial tax increase among those whose income situation is not changed by the universal income.

For married couples, the programme is not automatically individualized since it would still be possible to choose to maintain joint taxation. Couples with a family quotient that is less than the potential amount of the UBI should choose individualization. This is the case for couples with low incomes and not much income differential. Conversely, couples for whom the family quotient provides a bigger advantage than the basic income should choose to stick with joint taxation[1]. This would be the case for couples in which one of the individuals has a very high income and the other has no income[2].

For the most modest households the UBI replaces the RSA (income supplement for the working poor) and the Prime d’activité (working tax credit), and the calculation of social benefits (housing and family allowances, disabled adult allowance, scholarships, etc.) is not modified, as their amounts are included in the resources used to calculate the universal income.

In the general framework, for all tax households whose gross resources are less than 1.9 times the SMIC, i.e. 2,800 euros gross per month, the UBI is equal to the difference between the base amount of 600 euros per month (7,200 euros per year) and 27.4% of the tax household’s gross resources. For non-taxable households, the UBI is considered a tax on negative income. For taxable households with gross resources of between 1.5 and 1.9 times the SMIC (3.8 SMIC in the case of a married couple), the UBI reduces the income tax due, thereby increasing the household’s disposable income, with this additional income cancelling out at 1.9 SMIC. The measure’s cost to the public finances for these households therefore corresponds to the difference between the amount of the UBI and the income tax currently paid. For tax households with gross resources of more than 1.9 times the gross SMIC (3.8 SMIC for married couples), the current system applies and there is no gain (Figure 1).

Formally, the monthly amount of UBI received by a tax household composed of a single adult and with resources of less than 1.9 times the gross SMIC is based on the following formula:

UBI = 600 – 0.274 x GR

GR, gross resources, corresponds to the gross taxable income, as defined in the tax code, of the tax household, increased by a factor of 1.33 used to approximate the conversion between taxable income and gross resources including charges and contributions, the tax base for the calculation of the UBI. In the case of a married couple, the UBI is calculated as follows, since the UBI as proposed is not then individualized:

UBI = [600 – 0.274 x GR/2] x 2

In order to measure the measure’s redistributive impact, we have drawn on the micro-simulation model of the DREES and INSEE known as INES ([3] see the box). As the last operational version of the model dates from 2015, the results presented must be interpreted In line with the legislation of 2015. In fact, measures such as the Prime d’activité credit, introduced in 2016, are not taken into account, in contrast to the Prime pour l’emploi in-work tax credit (PPE).

As of January 2018, people over age 18 who are still reported in their parents’ tax household and who are UBI eligible must leave their parents’ tax household in order to benefit from the UBI. It should be noted that this case is not dealt with in our evaluation, given the complexity of taking into account transfers between parents and children when they are not in the same tax household. We will therefore focus on households in which the reference person was aged between 18 and 64, i.e. 20 million households out of the 28.3 million total households in France, as the rest, pensioners, are not eligible for the measure.

The UBI has been modelled as an additional line in the calculation of income tax, with the amount of UBI being subtracted, subject to conditions of age, resources and marital status explained above, from the latter.

Subject to these assumptions, the UBI should benefit 11.6 million households in which the reference person is aged 18 to 64, at a gross cost of around 51 billion euros, i.e. an average of 4,400 euros per year and per beneficiary household.

The gross cost is not the cost to the public purse. Indeed, the implementation of the UBI would de facto lead to the elimination of the base RSA income supplement and the Prime d’activité tax credit from the tax-benefit system. In 2016, these two programmes had a fiscal cost of close to 15 billion euros (10 billion euros for the RSA and 5 billion for the Prime d’activité). Moreover, the interactions between universal income and these other social benefits are not yet completely set out in Benoît Hamon’s proposal[4]. If the amount received from UBI were to be taken into account for the calculation of the other social benefits, the amounts paid for these would fall significantly. The gross cost of universal income would remain unchanged, but savings could be realized on social benefits.

We assume here that the amount received in social benefits by the household is taken into account for the final calculation. In other words, we subtract from the amount of UBI received by the household 27.4% of the total amount of social benefits received in cash (housing and family allowance, scholarships, disabled adult allowance, etc., i.e. 32 billion euros per year for potential UBI beneficiaries). While including the benefits in the calculation of the amount of UBI is complicated by the structure of the microsimulation model, it is possible to estimate the reduction in the overall amount of UBI paid by taking into account total social benefits, about 6 billion euros.

If this option is chosen – which we assume in the absence of further clarification – UBI’s “net” cost, excluding the 18-25 year-olds fiscally reporting under their parents, would be on the order of 30 billion euros, which is close to the amount declared by the candidate, to which, once again, it will be necessary to add the amount owed to individuals between the ages of 18 and 24 who are currently reported fiscally by their parents. In 2015, of the 5.2 million individuals aged 18 to 24, 1.7 million were fiscally independent of their parents. The additional gross cost if no 18-24 year-olds were included on their parents’ tax statements would therefore be on the order of 25 billion euros, from which should be subtracted 27.4% of the scholarships (0.115 billion euros per year) and housing benefits paid (1.4 billion euros per year), as well as the tax benefits currently enjoyed by the parents of the said individuals (benefit of up to 1,500 euros per year and per child, to a maximum of 5.2 billion if all households are at the ceiling).

The measure, which is targeted at low-income households and not funded by an increase in household taxation or a decrease in social benefits, would have a positive impact on the bottom of the distribution of living standards (Figure 2) [5].

On average, households in the first decile of living standards should see their standard of living rise by 257 euros per month per consumption unit, i.e. a 38% increase in their average standard of living. The gain for households in the second decile should be roughly half as much, i.e. 137 euros per month per consumption unit, which represents a 13% increase in their average standard of living.

Given that, unlike many benefits, the UBI is allocated not to households but to tax households, some members (not taxed jointly but cohabiting as unmarried couples not in PACS civil partnerships) of some households in the upper deciles of the distribution of living standards should receive the UBI (and the highest decile more than the ninth decile due to a composition effect). In other words, there are tax households with low gross incomes among households with high living standards[6].

Based on these assumptions, the median standard of living would be raised by 3.6%, and the poverty rate, i.e. the share of French households with resources under 60% of the median level, i.e. about 1,000 euros / month / consumption unit, would come to 8.5%, versus 13.4% at present. The median standard of living of the poorest households – those with a standard of living below the poverty line – would rise by 11%. The intensity of poverty, measured as the relative gap between the median standard of living of the poor and the poverty line, would also fall by a third, from 17% today to 11%.

Finally, the Gini coefficient of living standards, an indicator of inequality, would be reduced by 0.04 to a level of 0.26, thus moving France from a median situation in terms of the Gini at the European level to being among the least unequal countries – the European median of the Gini in 2015 was 0.30 (and the lowest 0.25).

Excluding the young people (aged 18-24) reported on their parents’ taxes, the net cost of the UBI would be on the order of 30 billion euros. By adding them, subject to a more detailed assessment, the net cost would be on the order of 49 billion. This is a long way from the 400 billion once bandied about, but it is still not negligible[7]. If the UBI were to be financed by a reform of personal taxation, this would lead to a considerable increase in the marginal rates of the highest deciles of the income distribution. Note that personal income tax brings in 74 billion euros annually. Another tax base, such as wealth, could also be used, but this would lead to a significant hike in wealth taxes. Property taxes and the ISF wealth tax currently bring in a little less than 30 billion euros. Moreover, the redistributive effects of the UBI – which are significant, in our assessment – would be amplified by an increase in taxation that is already progressive.

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Box:  The Ines micro-simulation model (Sources: INSEE, DREES)

Ines is the acronym for “Insee-Drees”, the two organizations that are jointly developing the model. The model is based on the INSEE’s Tax and Social Revenue surveys (ERFS), which include several hundred details on each individual and accurate and reliable data on income taken from tax returns. It can be used to simulate all recent legislative years using more recent ERFS years.

The model is used to carry out studies at annual intervals, but it is also used for in-depth studies in order to inform the economic and social debate in the areas of monetary redistribution, taxation and social protection. Finally, it is sometimes used to aid reflection in response to specific requests from various high government councils, supervisory ministries or control bodies (IGF financial inspectorate, Court of Auditors [Cour des comptes], Igas social inspectorate).

The Ines model simulates:

— Social charges and direct taxes: social contributions, CSG wealth tax, CRDS debt contribution and income tax (including the Prime pour l’emploi credit);

— Social benefits other than those corresponding to replacement income: personal aid for housing; the main social minima: the Revenu de solidarité active (RSA) income supplement; the Disabled adult allowance (AAH) and its complements; pension supplements and the Supplementary disability allowance (ASI); family benefits: the Family allowance (AF), the Family complement, the Back-to-school allowance (ARS) and high school scholarships, the Young child benefit (Paje) and its complements (Free choice of activity complement – CLCA – and Free choice of childcare complement – CMG), public subsidies for childcare in collective and family kindergartens, the Family support allowance (ASF) and the Disabled child education allowance (AEEH); and the Prime d’activité credit.

The main omissions relate to local taxes and subsidies (property tax, for example) and the Solidarity tax on wealth (IS). Retirement pensions, unemployment benefits and housing tax are not simulated but are presented in the data. Indirect levies are strictly speaking also outside the scope of the Ines model. The model simulates, using ranges, the different benefits to which each household is entitled and the taxes and levies that it has to pay. Ines draws on the INSEE’s Tax and Social Revenue surveys (ERFS), which bring together socio-demographic information from the Employment Survey, administrative information from the CNAF, the CNAV and the CCMSA, and details of the income reported to the tax authorities for the calculation of income tax.

Ines is a so-called “static” model: it does not take into account any changes in household behaviour, for example in terms of birth rates or labour market participation, which could be induced by changes in tax-benefit law. Since 1996, the model has been updated annually during the summer in order to simulate the most recent legislation and cover the preceding year. For example, in the summer of 2016, Ines was updated to simulate the legislation for 2015. Based on these updates, the INSEE and DREES teams contribute annually to the INSEE’s Social Portrait, in which they analyse the redistributive balance sheet for the tax and benefit measures enacted during the preceding year. The latest publication is entitled “Tax and benefit reforms in 2015 are leading to a slight redistribution from the richest 30% to the rest of the population” (André, Biotteau, Cazenave, Fontaine, Sicsic, Sireyjol).

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[1] Recall that the family quotient gives entitlement to a maximum tax reduction of 30,000 euros per year. The abolition of the family quotient would yield 5.5 billion euros (HCF, 2011) but would cost all the UBI paid to partners with a lower income who have chosen individualization.

[2] We have chosen not to take into account these tax optimization mechanisms within households, but it is understood that this means the evaluation proposed for the cost of the measure is underestimated.

[3] The source code and documentation for the INES micro-simulation model was opened to the public in June 2016 (https://adullact.net/projects/ines-libre). We have been using the 2015 open access version since 1 October 2016.

[4] In particular, the use of a micro-simulation model such as INES makes it possible to explore the consequences of different choices that can be made about the situation of the persons covered, the net redistribution effected and what has to be financed. A change in the rules for allocating or calculating a social benefit can have significant impacts on the net cost and the redistributive effects.

[5] The proposed measure significantly alters the distribution of living standards. Due to this, some households see their membership in a decile of living standards change positively or negatively. The deciles are maintained here at their pre-reform level.

[6] By way of illustration, the average age of the reference persons in households in the upper decile of the standard of living benefiting from the UBI is over 55. It can thus be assumed that these households are home to young adults who are fiscally independent but have few resources.

[7] The evaluation presented here is called “static”. It therefore does not take into consideration any possible changes in individual behaviour with respect to employment due to the impact of this measure.

By Guillaume Allègre and Henri Sterdyniak

In a situation of continuing high levels of unemployment and poverty, heightening job insecurity, and fear about job losses due to automation, the proposal for a universal basic income has become a part of the economic and social debate in France and in other developed countries. Such a programme would pay a monthly allowance to any person resident in a country with no conditions on means or activity. On 13 October 2016, the OFCE, as part of its mission to stimulate informed economic debate, held a study day, which was attended by researchers who had worked on this project, to develop, support and criticize it. An e-book brings together most of the contributions that were presented and discussed during the day, some of which were revised to take into account the discussion.

The discussion focused on a number of points:

• What kind of social project do universal income proposals form part of? How would such a programme work in terms of increasing the levels of an allowance and how would it fit in with current social protection schemes?
• Is it possible to finance a universal basic income?
• What would be the financial consequences for different categories of households, especially those in a financially precarious situation?
• What would be the impact on activity, employment, unemployment, wages, working conditions, and in particular on menial labour, part-time work, precarious work, and low-wage jobs?
• Is universal income a response to the “end of work”? Is this latter a credible hypothesis?
• What are other possible ways to fight poverty and precarious work?

The article by Henri Sterdyniak, “From social minima to a universal basic income?”, describes the current state of the social assistance system in France, including the social minima and in-work benefits. These programmes are targeted and relatively generous, but the system is complicated, with intrusive controls, and social assistance is often perceived as stigmatizing. The article argues for maintaining the family-oriented character of income tax and social benefits. The author discusses the various arguments for universal basic income proposals and how they would work. If one wants to maintain social insurance benefits (unemployment, pensions) and universal benefits (health), a universal basic income should be financed mainly by an increase in direct taxes on households, which tends to render it unrealistic. On the other hand, it is not socially desirable to abandon the goal of full employment and to permanently exclude a large part of the population from work, even if it is guaranteed an income just above the poverty level. The article argues for a guaranteed minimum income (means-tested) on a short-term basis to promote economic recovery, for the creation of public jobs, and for “last resort” jobs, and in the longer-term for work-sharing by reducing working hours and work rates.

The article by Guillaume Allègre, “Universal income: Utopian or pragmatic?” emphasizes that a universal basic income is often assigned two objectives: on the one hand, to manage the end of work and, on the other hand, to simplify the tax-benefit system and eliminate the lack of take-up. For some, the income should be sufficient to live, while for others it should be relatively weak so as not to upset the tax-benefit system. Doubts remain about the reality of the scarcity of work. Moreover, a generalized reduction of working time seems to be a more sustainable strategy than a universal income, because it deals with all employees instead of cutting society into two. Perhaps a universal basic income should be considered to be a tax-benefit reform that would help mainly to combat the lack of take-up of social benefits. We would go from assistance that must be personally requested to an automatic universal benefit. This raises the corollary question of the individualization of the tax-benefit system. The public authorities are faced with a trade-off between a simplified automatic system on the one hand and a system that offers fine-tuned responses to needs on the other.

The article by Gaspard Koenig, “A living income,” denounces the current in-work income support system (“RSA”), deeming it paternalistic, unfair and stigmatizing. He argues for a liberal conception of a basic income that allows each individual to be responsible and autonomous and to define his or her own needs. The universal basic income would be 500 euros (250 euros for children) in the form of a tax credit, while a 25% tax would be the only income tax. The reform would not fundamentally change the distribution of wealth but would free the poorest from being haunted by poverty through providing stability and security.

The article by Guillaume Mathelier, “A step towards the equality of initial endowments: Towards a well-lived life”, assigns society the philosophical and political objective of guaranteeing each individual “a well-lived life”. The moral requirement of ensuring the “equality of initial endowments” involves three measures. The first measure concerns the establishment of a living income to cover basic needs from age 18, and comprises on the one hand an egalitarian, universal income, without imposing any requirements, together with a supplemental amount to meet any special or local needs of recipients. The second measure envisages that a living income could be capitalized during childhood and paid at age 18 in the form of an “emancipation capital”, which would have a counterpart consisting of compulsory civic service. Finally, non-monetary rights (public services, preservation of natural vital resources, common goods) must be added to guarantee the philosophical and political objective of a “well-lived life”. 

Jean-Marie Monnier and Carlo Vercellone, after having challenged the thesis of the end of work in their article “Basic income as primary income”, propose a re-examination of the notion of productive labour in cognitive capitalism where cognitive labour, intangible and collective, tends to spread over all social time and life. The increasingly social and collective nature of work makes it impossible to measure the contribution that each individual makes to production. Thus, basic income would constitute a primary income that is directly related to production, that is, the counterpart of activities that create value and wealth, which are currently unrecognized and unpaid.

The article by Jean-Eric Hyafil, “Implementing a basic income: Difficulties and solutions”, offers an example of a simple reform that introduces a universal basic income at the level of France’s current income support (RSA) for a single person (475 euros), which is financed through a restructuring of income tax. The purpose of the exercise is to use this example to highlight the stakes and difficulties involved in a tax reform that introduces a universal basic income and some solutions for rendering it possible. The budgetary accounting involved in a reform like this is considered, along with its redistributive effects, the question of the future of “income tax niches”, the issue of the individualisation or couple-based character of income tax, the mobilization of financial resources other than income tax to finance a universal basic income, etc.

The article by Anne Eydoux, “Conditionality and unconditionality: Discussion of two myths about employment and solidarity”, denounces two myths: first, that income support (RSA) and unemployment benefits discourage work, and second, that waged employment is coming to an end and could be replaced by a universal basic income. The article shows that it is the weakness of the jobs offer and the employment reforms that are behind the persistence of unemployment and the development of precarious employment. The proposal for a universal basic income amounts to distributing resources without organizing the production needed to generate them. It neglects the centrality of work and renounces the goal of full employment. The article suggests avenues other than a universal basic income, in particular reducing the conditionality of social benefits, but also increasing the wages of jobs deemed unskilled and reducing working hours.

In “A basic income: A remedy or a trap?”, Jean-Marie Harribey denounces the inconsistencies of the basic income project. He rejects the thesis of the end of work and the abandonment of the objective of full employment. He argues that work that is socially validated by the market or by a political decision is the only source of value, unlike domestic work, voluntary work or leisure activities, meaning that a basic income would of necessity constitute an income transfer. But distributing more income necessarily requires producing more, which is in contradiction with the thesis that a universal basic income would make it possible to escape the necessity of work. The article denounces the project’s risks: the divide between those who would have a job and those who would be excluded, and the calling into question of social rights. It proposes the collective reduction of working time and a guaranteed allowance for adults.

The article by Denis Clerc, “A basic income: Much ado about not much?”, presents an analysis of universal income proposals, which he criticizes for requiring a lot of gross transfers to produce only weak redistributive effects. The same result could be achieved much more simply by boosting the incomes of the poorest strata (through benefits or the creation of socially useful jobs partially financed by the community) and taxing the richest strata. He worries that raising taxes on the wealthiest would encounter political and economic obstacles. He hopes that experiments might be put in place and that decisions would not be taken until the results were known.

Paul Ariès in “For a demonetarized universal basic income: Defending and extending the sphere of the free” proposes an individual autonomy allocation, which to the maximum possible would be given in a demonetarized form: one part in the national currency, one part in a regional currency if possible so as to facilitate the relocation of activities towards those with high social and ecological value added, and the essential part in the form of rights of access to common goods. The aim is to extend the sphere of what’s free. This free component would be used to democratize the functioning of the public services, to rethink existing products and services ecologically and socially, to decide what should be free and therefore produced as a priority, and to establish the commons, i.e. relationships based on reciprocal giving.

The text by Bernard Friot, “Continuing to affirm a non-capitalist production of value thanks to the political status of the producer”, rejects both the basic income project (which would allow capital to no longer assume the responsibilities of employers and to organize a fall in wages and job insecurity) as well as the Keynesian response of full employment, shorter working hours and redistributive taxation. Workers must fight not for a better distribution of value, but for the production of an alternative value. They must replace capitalist institutions (profit-seeking ownership, credit, labour market) by institutions inspired by social welfare and the civil service: non-capitalist production, personal skills, lifetime wages, and the financing of investment through an economic contribution.

The article by Mathieu Grégoire, “The part-timers regime: A wage model for all discontinuous employment?”, starts with the experience of setting up and maintaining France’s regime governing entertainment professionals (intermittents du spectacle). The latter organizes the socialization of wages through a framework of mechanisms ensuring interprofessional solidarity and not through a public subsidy financed by the taxpayer. Furthermore, the struggle for an unconditional income must develop through the extension of the wage relationship and the requirement of a wage for all and not through redistributive mechanisms. Based on the system for entertainment professionals, all employees in discontinuous employment should be provided with a right to an indirect socialized salary.

In any event, the debate on a universal basic income will not have been in vain if it allows for progress on two important points: the level and conditions of access to minimum social benefits, and the evolution of work.

For more, see the e-book: Guillaume Allègre and Henri Sterdyniak (coord.), 2017 : « Faut-il un revenu universel ?  L’état du débat », OFCE ebook 

By Catherine Mathieu

On 1 April 2016, a national living wage (NLW) took effect in the United Kingdom. This may come as a surprise to France, where the UK labour market is considered the epitome of a deregulated market. This new minimum wage, the NLW, adds 50 pence to the existing minimum hourly wage (the National Minimum Wage, NMW) for those over age 25, meaning a rise from £6.70 to £7.20, or 7.5%. This follows a 3.1% increase in the minimum wage in October 2015 for those over age 25 (from £6.50 to £6.70), for a total increase in one year of 10.8%. This sharp increase in the minimum wage does not represent a sudden change of course by the government. The Conservative election platform for the 2015 parliamentary elections already promised a raise in the minimum wage and pointed towards the introduction of a living wage. The announcement that the NLW would be established was made in July 2015, during the presentation of the budget by George Osborne, Chancellor of the Exchequer, following the Conservatives’ election victory. This is simply the first step in an effort to raise low wages, as the government has a target of increasing the NLW to 60% of the median wage by April 2020 (up from 55% at present), to about 9 pounds.[1]

This boost for low wages is part of a broader strategy of the British government: first, the government says it wants to “reward work”; not only has the minimum wage been increased, but eventually employees at the minimum wage level will no longer pay income tax (this was one of the Tories’ campaign promises in 2015). Furthermore, the government is taking measures to reduce taxes on business, including a symbolic cut in the corporation tax rate, which will be only 17% in 2020 (instead of only 20% currently), which will offset the increase in wages, at least for some companies (those that are most profitable). Finally, the government has set an ambitious target for reducing the public deficit, i.e. from 5% of GDP in 2015 to a balanced budget in 2020, in part by lowering public spending, particularly on social welfare. Raising the minimum wage would thus seem to be intended to offset, at least partially, a future reduction in benefits.

The UK’s process for setting the minimum wage is well codified. Every year the government revises the minimum wage on October 1st, based on the recommendations of the Low Pay Commission (LPC), an independent body composed of academics and representatives of employee trade unions and employers. The UK has had a minimum wage only since 1999. It was implemented according to the recommendations of the Low Pay Commission at levels that matched the low wages of that time, after broad consultation with the business sectors concerned. The implementation of the minimum wage failed to spark waves of protests from employers, nor did it have a significant impact on employment, according to various assessments by the LPC over the years. The minimum wage level was initially low, and included separate rates for adults and young people. The LPC is mandated to produce an annual report on low wages and to make recommendations to the government on adjusting the minimum wage so as to ensure that low wages do not have significant adverse impacts on the employment of the employees concerned. The government has now also charged the LPC with monitoring the implementation of the NLW and proposing future adjustments, which will take place every year in April.

The NLW applies only to those over age 25. The minimum wages of young people remain at the level set last October. There are currently five minimum wages: for apprentices (£3.30 per hour); for age 16-17 (£3.87 per hour); age 18-20 (£5.30); age 21-25 (£6.70); and over 25 (£7.20). These differences are substantial; the analyses by the LPC since 1998 have argued for lower wage rates for young people, so as to prevent them from being squeezed out of the labour market because of high salaries. This gap has won acceptance, unlike the situation in France, on the grounds that it promotes the growth of “odd jobs” for young people. The employment rate of British young people (15-24 years old) is very high (51.4% at end 2015, against 27% in France and 31% in the euro zone), and it is up significantly (it was 46.8% at end 2010).

In its March 2016 report, [2] the LPC drew some initial conclusions on the possible impacts of the NLW. In April 2016, about 1.8 million employees (out of 29 million salaried jobs) benefited from the NLW, while in 2015 one million adults over age 25 earned the minimum wage. The NLW represents an increase in the annual salary of 680 pounds (for the average working hours of the persons concerned, 1360 hours per year, 26h15 per week). The impacts will vary greatly depending on the sector. It is in the service sectors that low wages are most common (40% of jobs are paid the minimum wage in cleaning companies, 30% in the hotel-café-restaurant sector, and 34% in hairdressing). According to the LPC, this year the implementation of the NLW will impact payroll by around 0.7 billion pounds over the full year, i.e. 0.1% [3]; raising the NLW to 60% of the median wage will cost another 2.4 billion pounds, which by April 2020 will represent 0.4% of the total annual payroll. These figures include a diffusion effect on the first 25 percentiles of wage-earners. The impact of introducing the NLW on wages paid will be close to 4% in the cleaning sector and 3% in the hotel-café-restaurant and hairdressing sectors. Assuming a similar diffusion effect, the Bank of England [4] also estimated that the NLW would lead to a gradual increase in payroll of less than 0.5% in five years. About 3 million people would receive the NLW in 2020.

In July 2015, the Office for Budget Responsibility estimated that by 2020, the introduction of the NMW could result in the loss of 60,000 jobs, according to average assumptions of the elasticity of employment to its cost of – 0.4 [5], while also forecasting that over that same period the UK economy would create 1.1 million jobs. The national living wage is coming into force after several years of growth and job creation that has reduced the unemployment rate (by the ILO definition) to its pre-crisis level (5.2%), meaning that any job losses in certain sectors should be very manageable.

Criticism of the NLW is currently coming from two camps: first, the trade unions are accusing the measure of further widening the gap between the wages of young people and adults; and second, employers, particularly in low-wage sectors, are warning of the risk of expanding the informal economy if the NMW is effectively increased to 9 pounds per hour by 2020, although the current level of the NLW is generally considered acceptable.

These adjustments in the British minimum wage have led the UK to join the ranks of the OECD countries with the highest minimum wage levels, although it remains behind France, for example (Figure 1). The new national living wage still leaves the British minimum wage lower than the French minimum wage (the SMIC, which represents 60% of the median wage). At £7.20, or 9 euros, the hourly rate of the British national living wage is currently almost 7% lower than the level of France’s SMIC. After taking into account employer social contributions, the hourly cost of the NLW is also below the SMIC, because, even though France has enacted important exemptions from employer social contributions (Fillon exemption, Responsibility Pact, CICE credit, prime zero charge) on low wages, social contributions are also very low in the UK. Take the case of an adult over age 25, unmarried and childless, who works 35 hours per week (Table). The hourly cost to the employer is 9.48 euros in the UK against 10.43 euros in France; the hourly cost to the employer falls to 9.21 euros in the UK if the employee works 26h15 per week, which represents the average working time of employees on the minimum wage in the UK. If we now consider the salary received by the employee, net of employee social contributions and income tax, the NLW is higher than France’s SMIC, especially if the employee works more than 30 hours per week, which makes them eligible for the Working tax credit, which is more generous than France’s prime d’activité credit. On the other hand, French employees are entitled to a much more generous public system of pension and unemployment benefits.

The establishment of the national living wage in the UK thus represents an effort to catch wages up in sectors where low wages and part-time and precarious work are most common. This increase, in its current form, will have only a marginal macroeconomic impact on the British economy.

[1] As the aim is to reach 60% of the median wage, this figure of £9 is simply indicative, based on the projections of wage increases performed in March by the Office for Budget Responsibility (OBR). The OBR is an independent body that has been responsible since 2010 for performing the medium-term macroeconomic forecasts used for drawing up the UK budget and for analysing the UK public finances.

[2] See National minimum wage, Low Pay Commission Report Spring 2016, March 2016.

[3] Given the low levels of working hours and hourly wages, workers on the minimum wage earned only a quarter of the average salary at end 2015. The minimum hourly wage represented only 42.8% of the average hourly wage (£6.70 against £15.70).

[4] See Inflation report, Bank of England, August 2015.

[5] This elasticity corresponds to the median of the empirical estimates made using British data. Job losses rise to 110,000 if we use the hypothesis of an elasticity of -0.75 but are only 20,000 for an elasticity of -0.15.

By Jacques Barthélémy and Gilbert Cette

The debate over a single standard contract [contrat unique] generally arises in relation to the duality of the labour market, with on the one hand employees who are highly protected, such as civil servants and permanent employees (“CDI” contracts), and on the other hand workers shifting between periods of unemployment and poorly protected precarious jobs (fixed-term “CDD” and temporary contracts). This contrast reflects gross inequalities, and has important social and economic consequences.

To deal with this dual labour market, proposals are often made for a “single contract” that would reduce the differences in status and rights between precarious and permanent contracts. But the concept of a “single contract” is often poorly defined. If we closely examine the major differences that exist in the content of the various proposals, it even begins to look like a potluck approach!

The three stated objectives of the proposal for a single contract are: (1) to reduce inequalities in status arising from the coexistence of so-called “precarious” contracts (fixed-term and temporary contracts) and permanent contracts; (2) to reduce the complexity and the costly uncertainties surrounding the legal treatment of redundancies; and (3) to partially internalize the social costs of redundancies. In an article in the Revue de l’OFCE, we show that a single contract cannot really meet these objectives, which would be better served by other means, and that it would give rise to major legal risks.

For more information, see: J. Barthélémy and G. Cette, 2015, « Le contrat unique: une auberge espagnole », Revue de l’OFCE no.146.

By Guillaume Allègre

What is a Left economics? In an opinion column published in the newspaper Libération on 9 June 2015 (“la concurrence peut servir la gauche” [“Competition can serve the Left”], Jean Tirole and Etienne Wasmer reply that to be progressive means “sharing a set of values and distributional objectives”. But, as Brigitte Dormont, Marc Fleurbaey and Alain Trannoy meaningfully remark (“Non, le marché n’est pas l’ennemi de la gauche” [“No, the market is not the enemy of the Left”]) in Libération on 11 June 2015, reducing progressive politics to the redistribution of income leaves something out.A Left economic policy must also be concerned about social cohesion, participation in social life, the equalization of power, and we could also add the goals of defence of the environment and, more generally, leaving a fair legacy to future generations. Paradoxically, if the Left must not a priori reject market solutions (including the establishment of a carbon market), the de-commodification of human relations is also part of core left-wing values. The authors of these two columns insist that it is the ends that count, not the means: the market and competition can serve progressive objectives. This is not a new idea. The merchants of the 18^th century had already understood that holding a private monopoly could allow them to amass great fortunes. Tirole and Wasmer draw on more recent debates, including on the issues of taxis, housing, the minimum wage, the regulation of the labour market, and university tuition fees. Their conclusion, a bit self-serving, is, first, that more independent evaluations are needed, and second, that our elected representatives and senior officials need to be trained in economics.

Does the Left define itself by values? To accept this proposal, we would need to be able to distinguish clearly between facts and values. Economics would be concerned with facts broadly speaking and would delegate the issue of values to politics. Disagreements about facts would be exaggerated. Political differences between the Left and the Right would be only a matter of where to put the cursor on values or preferences, which would be independent of the facts. According to this viewpoint, the instruments need to be designed by trained technicians, while the politicians just select the parameters. The Left and the Right would then be defined by parameters, with progressives more concerned about reducing inequality and conservatives more concerned about the size of the pie. In this scheme, disagreements among economists would be focused on values. Paradoxically, the examples used by Tirole and Wasmer are the subject of important controversies that involve more than just values: economists are very divided over the liberalization of the taxi business, the level of the minimum wage, and the possible introduction of university enrolment fees. There are important disagreements, even among progressive economists.

Why the disagreement? There are fewer and fewer disputes over the facts, strictly speaking. The system of statistics has made considerable progress. However, pockets of resistance remain. For example, on taxis, it is difficult to know who holds the licenses and the prices at which they were acquired, even though these are very important issues. If the vast majority of licenses are held by people who received them for free, then increasing the supply via private cars with drivers (“VTC”) poses no real problem of fairness. On the other hand, if most licenses were acquired on the secondary market at exorbitant prices (up to 240,000 euros in Paris), then the question of compensation arises. Buying 17,000 licenses at 200,000 euros apiece would cost the State 3.5 billion euros just for the licenses in Paris. This problem cannot be dismissed with a simple, “of course these are often expensive” (see “Taxis vs chauffeur-driven private cars: victory of the anti-innovation lobby?”).

While the facts are in little dispute, the disagreement often comes down to what matters. Should we put the emphasis on a lack of equal outcomes or a lack of equal opportunity? Should we count real estate gains when examining inequalities in capital? Should we be concerned about relative poverty or absolute poverty? Should we worry about inequality between households or between individuals? All this reflects that disagreements are not just a matter of where you put the cursor, but the prioritization of goals that are sometimes complementary and sometimes contradictory. The very way the system of statistics is constructed is not to produce pure facts but instead results from a logic that dictates that what you measure is the representation of a norm. But this norm is in fact reductive (it excludes others), so much so that the measure has meaning only from when we agree on the norm’s value: the measure is never neutral vis-à-vis values.

This vision of an economic science that can distinguish facts from values ​​is too reductive – it is often difficult to distinguish between the two. For example, depending on whether we measure the impact of tax policy on individuals or on households, the policy may be characterised as redistributive or as anti-redistributive. Often there is no easy solution to this problem, because it is difficult for the statistician to know how incomes are actually being shared within households. The current solution for measuring living standards and poverty is to assume that resources are fully shared within the household, regardless of the source of the income (labour income from one or another member, social welfare, taxation, etc.). Yet numerous studies show that for many households this assumption is false: empirical studies show that spending depends on who provides the resources, with women spending a larger portion of their income on the children.

Does the free character of the higher education system make it anti-redistributive? To public opinion this is obvious: the students come from wealthier families and will receive bigger salaries than those who don’t study, while everyone pays taxes, including VAT and the CSG wealth tax. This seems to be true if we think about it at time t. On the other hand, if you consider the life cycle the issue becomes more complicated: many students do not get high-paying jobs. School teachers, artists and journalists are often highly educated but make lower-than-average wages. For them, paying income tax is more advantageous than paying enrolment fees. Conversely, many people who have little education receive large salaries. Over the life cycle, having higher education paid for through income tax is redistributive (see “Dépenses publiques d’éducation et inégalités. Une perspective de cycle de vie” [“Public expenditure on education and inequality. A life cycle perspective”).

Should we measure income at the household level or individual level? Over the life cycle or at a given point in time? These examples show that what is measured by economists usually depends on a norm. This does not however mean that the measure is completely arbitrary and ideological. In fact, social science measurement is neither entirely normative nor merely descriptive: facts and norms are intertwined.

Economists do not reason simply with raw facts. They develop and estimate behavioural models. They do this to answer the question, “What if …?” What if we increased the minimum wage, what would be the impact on employment and wages at the bottom of the scale? You could classify the answer to such questions as facts. But unlike facts in the strict sense, they are not directly observable. They are generally estimated in models. However, the disagreements over these “facts” (the parameters estimated in the models) are very important. Worse, economists tend to greatly underestimate the lack of a consensus.

The parameters estimated by economists have meaning only within a given model. However, the disagreements between economists are not just about the parameters estimated, but the models themselves, that is to say, about the selection of simplifying assumptions. Just as a map is a simplification of the territory it represents, economic models are a simplification of the behavioural rules that individuals follow. Choosing what to simplify is not without normative implications. The best map depends on the degree of accuracy but also on the type of trip you want to make: once again, facts and values are intertwined. Differences between policies are not simply parametric, but arise from different representations of society.

Thus, contrary to the conclusion of Tirole and Wasmer, economic evaluations cannot be simply left to objective experts. In this respect, economists resemble other social scientists more than they do physicians: in fact, agreement on what constitutes good health is easier than on what constitutes a good society. Economic evaluations must therefore be pluralist, in order to reflect as much as possible the diversity of views in a society. What separates us from implementing the reforms needed is not a pedagogical deficit on the part of the experts and politicians. Nor is it simply a problem of educating the elite. There is obviously no agreement among the experts on the reforms needed. However, the economic reforms are often too technical to submit to a referendum and too normative to be left to the “experts”. To resolve this problem, consensus conferences and citizens’ juries seem relevant when the subject is normative enough to care about the representativeness of the participants and technical enough that we need to seek informed opinions. In economics, these kinds of conferences could deal with the issue of the individualisation of income taxes or carbon offset taxes. In short, economists are more useful when they make the trade-offs explicit than when they seek the facade of a consensus.

By Eric Heyer

Six months following the signing of a national industry-wide agreement on unemployment benefits between the social partners, with new rules that normally are to apply until 2016, the French government, which wants to go further in reforming the labour market, is evoking the possibility of once again reforming the unemployment insurance system by reducing the level of benefits and the period they are paid.

It is far from clear that reforming the unemployment insurance system is in keeping with the idea that any reform must improve the “quality of life” of our citizens. This is, in any case, what is indicated by the latest publication of the OECD.

In Chapter 3 of the 2014 edition of the OECD’s Employment Outlook, the international organization has implemented the recommendations of the 2009 Stiglitz-Sen-Fitoussi report by evaluating the quality of employment in the OECD countries. This new indicator supplements conventional measures of the quantity of work and should eventually lead to transforming the content of public policy by imposing new assessment criteria on the public authorities.

The OECD constructs an indicator on the quality of employment on the basis of three factors: the quality of wages, the security of the job market, and the quality of the working environment. According to the OECD, this last dimension is relatively mediocre in France: the high level of professional requirements and insufficient resources to accomplish tasks leads to a high level of on-the-job stress for French employees. As for wages, a review of both their level and distribution places France close to the average of the OECD countries. Finally, while the quality of work in the country is close to average in the developed countries, this is, according to the OECD, due mainly to a high level of job security in France, due to both the extent of social security … and the generosity of unemployment insurance.

The proposals for reforming unemployment insurance would therefore tend to deteriorate rather than improve the “quality of life” for the French, and would thus miss their target from that perspective. But would they lead to improving the quantity of work?

There is some food for thought on this subject in Chapter 1 of the Report, in which the OECD indicates that the structural unemployment rate – i. e. the unemployment rate depending on the impact of rigidities that prevent the labour market from functioning properly – has not increased since the onset of the crisis in France, just as is the case in many other developed countries: for the OECD, the sharp increase in unemployment seen since 2008 has a mainly cyclical component that cannot be combated by reforming unemployment insurance.

As a consequence, given the current situation of the French economy, reforming unemployment insurance along the lines suggested by the government will, if the OECD analysis is to be believed, undermine the quality of employment – and in particular the quality of life of the unemployed – without reducing the level of unemployment!