By Christophe Blot

As with the economic performance of all the industrialized
countries, economic activity fell off sharply in the second quarter of 2020
across the Atlantic before rebounding just as sharply the following quarter. The
management of the crisis in the US is largely in the hands of the different States,
and the election of Joe Biden should not change this framework since he
declared on November 19 that he would not order a national lockdown. However,
the health situation is continuing to deteriorate, with more than 200,000 new Covid-19
cases per day on average since the beginning of December. As a result, many
States are adopting more restrictive prophylactic measures, although without returning
to a lockdown like the one in the Spring. This situation could dampen economic prospects
for the end of the year and also for the start of the mandate of the new
President elected in November. Above all, it makes it even more necessary to
implement a new recovery plan, which was delayed by the election.

As in the euro zone, recovery in the US kicked off as
soon as the lockdown was lifted. GDP grew by 7.4% in the third quarter after
falling by 9% in the previous quarter. Compared with the level of activity at
the end of 2019, the economic downturn amounted to 3.5 points, versus 4.4
points in the euro zone. The labour market situation also improved rapidly,
with the unemployment rate falling by 8 points, according to data from the Bureau
of Labor Statistics for November, from its April peak of 14.7%. These results
are the logical consequence of the lifting of restrictions but also of the large-scale
stimulus plans approved in March and April, which have massively absorbed the
loss of income for households and to a lesser extent for US companies (see here).
However, the upturn in consumption is still being dampened by some ongoing restrictions,
particularly in sectors with strong social interactions, where spending is
still nearly 25% lower than it was in the fourth quarter of 2019 (Figure 1).
As for the consumption of goods, it has been much less
affected by the crisis and is down only 12% from its pre-crisis level for
durable goods and 4.4% for non-durable goods. Nevertheless, most of these
support measures have come to an end, and as of this writing the discussions
that began in late summer in Congress have not yet led to an agreement between
Republicans and Democrats. Despite the rebound, the health impact of the pandemic
and the economic consequences of the lockdown on the labour market require a discretionary
policy in a country where the automatic stabilizers are generally considered to
be weaker[1]. New support measures will be all the more
necessary as a further tightening of restrictions is looming and the recovery
seem to be running out of steam. The initial consumption figures for the month
of October point to a fall in the consumption of services, and employment also
stabilized in November, remaining well below its level at the end of 2019.

However, after the setback of the discussions in
Congress, it will now be necessary to wait until the first quarter of 2021 for
a new support plan to be approved and for a possible reorientation of US fiscal
policy after Joe Biden’s victory. In the Autumn, the Democrats proposed a 2
trillion dollar (9.5 GDP points) package, almost as much as the 2.4 trillion dollar
(10.6 GDP points) package adopted in March-April 2020[2]. The aid would, among other things, support the
purchasing power of the unemployed through an additional federal payment.
Although unemployment is much lower than in the second quarter, it remains
above its pre-crisis level and is now characterized by an increase in long-term
unemployment for which there is generally no compensation. In November, the
share of those who had been unemployed for at least 27 weeks was 37 per cent
(or 3.9 million people, Figure 2), and the median duration of unemployment
had risen from 9 weeks at the end of 2019 to almost 19 weeks in November 2020.
In addition, States whose tax revenues have decreased with the crisis could
benefit from a federal transfer, thereby avoiding spending cuts[3].

However, despite the end of the suspense over the
outcome of the presidential elections, the political and economic uncertainty
has not been completely resolved. Indeed, it will not be known until early
January whether the Democrats will also have a majority in Congress. They have
certainly kept the House of Representatives, but it will be necessary to wait
until the beginning of January for the Senate, with a ballot planned in Georgia
that will determine the political colour of the last two seats [4]. Both seats are now held by Republican senators.
However, Joe Biden won Georgia by 0.2 points against Donald Trump, the first
victory in the State for a Democratic candidate since 1992. With both State-wide
senatorial elections to be contested directly, the results are likely to be
close.  If one of the Democratic
candidates is defeated, Joe Biden will be forced to contend with the
opposition. But, as Paul Krugman
points out, the Republicans are generally more inclined, once in opposition, to
promote austerity. This is reflected in the uncertainty indicators of Bloom,
Baker and Davies, whose economic policy uncertainty rose in November (Figure 3).
This uncertainty is certainly lower than in the Spring but remains higher than
that observed between 2016 and 2019. During this period, growth could weaken,
and then a strong recovery is likely to be followed by more subdued growth,
which will have repercussions on the labour market. Regardless of the outcome,
a plan will likely be approved in the first quarter of 2021, but its adoption
could take longer if it is conditional on an agreement between Republicans and
Democrats in Congress. However, this could be lengthy given the urgency of the
health and social crisis, and could plunge a significant proportion of the most
vulnerable into poverty.

Source : Baker, Bloom & Davis. https://www.policyuncertainty.com/index.html

[1] See for example Dolls, M., Fuest, C. &
Peichl, A., 2012, “Automatic stabilizers and economic crisis: US vs. Europe”, Journal of Public Economics,
96(3-4), pp. 279-294.

[2] By comparison, the
European programmes are weaker, ranging from 2.6 GDP points for France to 7.2
points for the UK.

[3] Note that the States generally have fiscal
rules limiting their capacity to run a deficit.

[4] Of the 100 seats in the Senate, the
Republicans already hold 50. In the event of a tie between the two parties, it
is the voice of the Vice-President-elect Kamala Harris that will decide between
them. A single victory in Georgia would therefore allow the Republicans to
retain the majority.

By Christophe
Blot

In the United States as in France, the
COVID-19 crisis has led to numerous measures restricting economic activities intended
to limit the spread of the virus. The result will be a fall in GDP, which is already
showing up in figures for the first quarter of 2020, and which will be much steeper
in the second quarter. In a country noted for its weak employment protection,
this unprecedented recession is quickly having repercussions on the labour
market, as reflected in the rise in the unemployment rate from a low point of 3.5%
in February to 14.7% in April, a level not seen since 1948. As Bruno
Ducoudré and Pierre Madec have recently demonstrated in the case of France,
the current crisis in the United States should also result in heightened inequalities
and insecurity. And the shock will be all the greater in the US since the
social safety net is less extensive there.

In the United States, the Covid-19 restrictions
were set not at the Federal level but by the various States at differing times.
The vast majority of States did decide however to close schools and
non-essential businesses and to encourage people to stay home. The lockdown was
thus imposed by California on March 19, followed by Illinois on March 21 and
New York State on March 22, but South Carolina didn’t follow until April 6.
North Dakota, South Dakota, Arkansas, Iowa and Nebraska have taken no action,
and three other States – Oklahoma, Utah and Wyoming – applied measures only in certain
counties, and not State-wide. However, by early April a large part of the
country had been locked down, with a varying degree of strictness, affecting between
92% and 97% of the population[1].

Which employees have been hit hardest by the crisis?

According to a survey by the US Bureau of Labor Statistics, almost 25%
of employees worked from home in 2017-2018. However, some employees said they
could have stayed at home to work but did not necessarily do so during the
reporting period. With the COVID-19 crisis and the incentives to modify the
organization of work, we can therefore consider that almost 29% of employees
could stay at home during the lockdown [2].
Furthermore, as the survey
carried out for France highlights, the implementation of teleworking is more
widespread among employees in management jobs and commercial or financial
activities. In 2017-2018, 60% of these people could have managed to work from home.
In contrast, fewer than 10% of workers in agriculture, construction, manufacturing
or transport services would have been able to telework during the crisis. Not surprisingly,
the survey also shows that the employees able to telework are also those at the
top of the wage distribution. For the top quartile, 61.5% of employees could
work at home compared with fewer than 10% for employees in the bottom quartile.

Mirroring these
elements, a more recent study analyzed which jobs would be most affected by the
lockdowns and in particular by the closure of non-essential businesses [3]. Six sectors are particularly exposed.
Logically enough, these include bars and restaurants, transport and travel,
entertainment, personal services, the retail trade and some manufacturing
industries. Based on employment data for the year 2019, these sectors represent
20.4% of total employment. With more than 12 million jobs, the bar and
restaurant sector is being hit hardest. This survey also shows that the most
exposed employees generally receive below-average pay. They are particularly
concentrated in the two lowest wage deciles. For example, the wage bill for bar
and restaurant workers represents barely 3% of the total wage bill but more
than 8% of employment. These people usually work in companies with fewer than
10 employees. This dimension is all the greater in the United States since
access to health insurance is often linked to the employer, whose obligations for
insurance provision depend on how many employees they have. Finally, by
crossing the distribution by sector and geography, it appears that Nevada,
Hawaii and to a lesser extent Florida (23.7%) concentrate a larger share of these
sectors, and therefore of the exposed jobs [4]. Conversely, Nebraska, Iowa and Arkansas
are among the States where these sectors account for a smaller share of
employment [5]. These three States have also not adopted lockdown
measures and should therefore be relatively spared from the rise in unemployment.

Unemployment statistics for the months of
March and April
confirm this outlook. In one year, the unemployment rate increased by 4.8
points for those in management jobs or commercial or financial activities,
while, over the same period, the rate rose by 23 points for service jobs and
almost 15 points for employees in production. The geographic disparities are
also significant. In California and Illinois, the first States to implement a
lockdown, the unemployment rate rose 11.3 and 12.2 points, respectively, in one
year. Conversely, the States that have not enacted lockdown measures are among
those where the unemployment rate has risen the least over the year. The
increase reached 5.2 points for Nebraska, 6.7 points for Arkansas and 7.5
points for Iowa, for example.

The structure of employment is, however, a
key factor determining the variation in unemployment. Despite fairly close starting
dates for the lockdowns in Connecticut and Michigan, the unemployment rate rose
only 4.2 points in the former versus over 18 points in industrial Michigan. The
statistics also confirm the exposure to the shock of Nevada and Hawaii, which
recorded the two largest increases: 24.2 and 19.6 points respectively, while
Minnesota, with a very low exposure, saw its unemployment rate rise by only 4.9
points, one of the smallest variations since April 2019. Likewise, the impact
has been relatively softer in the District of Columbia, where the unemployment
rate rose by 5.5 points.

Health under threat?

The deteriorating state of the labour
market will be accompanied by a deterioration in living conditions for millions
of Americans, especially if the end of the lockdowns is not synonymous with a
rapid rebound in activity, as Jerome Powell, Chairman of the Federal Reserve,
now fears. This would result in increased poverty for households that have lost
their jobs. Previous analyses indicate that workers at the bottom of the
distribution will be the most exposed, especially since, despite the measures taken to
extend unemployment insurance, the duration of benefits remains overall
shorter in the United States. To deal with the crisis, the Federal government
has spent USD 268 billion (or 1.3 percentage points of GDP) on unemployment
insurance to extend the duration and amount of compensation. This is in
addition to the tax credit of up to USD 1,200 for households without children [6].
The government has thus chosen to support incomes temporarily, but unlike the
partial unemployment schemes in force in France and in many other European
countries, it has not protected jobs [7].
The flexibility of the US labour market could, however, prove more advantageous
in so far as the recovery is rapid and differs depending on the sector.
Employees actually do not lose much of their skills and can more easily find a
job in another business sector. But a protracted crisis associated with persistently
higher unemployment would greatly increase poverty.

In addition, access to health insurance is
also often linked to employment. Indeed, 66% of insured Americans are covered
by their employer, who is obliged to offer health insurance in companies with
more than 50 employees. The corollary is that many workers risk losing their
health coverage at the same time as their jobs if they cannot pay the portion of
the insurance costs previously borne by their employer. As for employees of
small businesses exposed to the risk of closure and unemployment, it is very
likely that they will no longer have the means to take out a private insurance
policy on their own. Already, in early 2019, just over 9% of the population had
no health coverage. While this rate had dropped sharply since 2010 and the
“Obamacare” reform, the annual report
of the US Census Bureau published in November 2019 estimated that more than 29
million people had no coverage in 2019, a figure that has risen somewhat since
2017. The coverage rates also show strong regional disparities, which is due to
the demographic structure of the States.

Although part of the economic support plan
is devoted to food aid [8]
and some health expenses, the COVID-19 crisis will once again hit the most
vulnerable populations and widen inequalities that are already significant and being
deepened by the recent tax reforms of the Trump administration.

[1]
In terms of GDP, the share of States that have imposed lockdowns is in much the
same proportions.

[2]
Note that this survey does not show a significant difference between men and
women, even if women have a slightly fewer opportunities for teleworking: 28.4%
against 29.2% for men.

[3]
See Matthew Dey and Mark A. Loewenstein, “How
many workers are employed in sectors directly affected by COVID-19 shutdowns,
where do they work, and how much do they earn?”, Monthly Labor Review,
U.S. Bureau of Labor Statistics, April 2020.

[4]
In Nevada, the exposed sectors represent 34.3% of jobs. This figure also
exceeds 30% in Hawaiï and is 23.7 % in Florida.

[5]
This is also the case of the District of Columbia due to the large presence of Federal
employees.

[6]
This amount is granted to households
receiving less than USD 75,000 (150,000 for a couple) per year. USD 500 is
awarded per child. The amount of the tax credit is regressive and falls to zero
for households with an income above USD 99,000.

[7]
See here
for our analysis of European and American strategies to deal with the crisis.

[8]
The plan approved on 18 March (Families
First Coronavirus Response Act) actually provides for over 20 billion
dollars in assistance for poor people.

By Guillaume
Allègre

Between 2017 and 2018, Finland conducted an experiment with universal income that gave rise to significant media coverage. 2,000 unemployed people receiving the basic unemployment benefit (560 euros per month) received the same amount in the form of unconditional income, which could be combined with income from work for the duration of the experiment (2 years, not renewable). On 6 May 2020, the final report evaluating the experiment was published (here is a summary of the results). The evaluators concluded that the experimental universal income had moderate positive effects on employment and positive effects on economic security and mental health. According to the final report, on average individuals in the treatment group worked approximately 6 additional working days (they worked 78 days). They experienced significantly less mental stress, depression and loneliness, and their cognitive functioning was perceived as better. Life satisfaction was also significantly higher. The results of the experiment therefore seem to argue in favour of a universal income. But is it really possible to draw lessons from the experiment with a view to generalizing the system? In 2018, I wrote that experimenting with universal income was “impossible“. Does the Finnish experience contradict this claim? It turns out that it is indeed difficult to draw lessons.

The principle of a universal income, as it
is commonly defined, is to pay a sum of money to all members of a political
community, on an individual basis, without means-testing or any obligation to
work or take a job.

Such experiments generally concern a small
number of people (in Finland, 2,000 individuals): the universal aspect of the
measure is therefore lost, but a measure’s impact can differ depending on
whether it affects everyone or only some of the population. How are the individuals
chosen? Two options are favoured by practitioners: a totally random draw, which
favours the representativeness of the experimental sample, or a saturation site,
which consists of including in the experimental sample an entire community (for
example a single labour market area), which helps to capture externalities and
interactions (“do I stop working more easily when my neighbour stops or
when my spouse receives assistance?”). In Kenya, villages
are used as saturation sites. In the Finnish experiment, 2,000 long-term
unemployed people receiving end-of-entitlement benefits (equivalent in France
to ASS assistance) constituted the experimental group, with the control group
being made up of recipients of end-of-entitlement benefits who had not been randomly
selected. This poses two problems. First, the experimental group is not
representative of the Finnish population. The long-term unemployed make up only
a small part of the population. So we cannot really say how people with jobs would
have reacted (would they have reduced their working hours?). Second,
interaction effects are not taken into account: for example, consider a job taken
up by an unemployed person in the experimental group, who thus increases his or
her labour supply in the context of the experiment – might this job have been taken
up by a member of the control group?

The definition of universal income tells us
nothing about its level or what benefits it replaces. All options are on the
table. Programmes with a more liberal, free-market orientation offer a
relatively low universal income and replace most social benefits and sectoral
subsidies (notably in agriculture) or can even substitute for regulations on
the labour market (the abolition of the minimum wage is envisaged). In a more
social-democratic logic, universal income would replace only the social minimum
(France’s RSA income support benefit) and income support for the in-work poor
(in France, the Prime d’activité). The amount envisaged is often equal
to or slightly higher than the social minimum. Finally, in a degrowth logic, the
universal income could be lifted to at least the poverty line in order to
eradicate statistical poverty. The effects expected from the reform depend
greatly on the amount envisaged and the benefits it replaces. In the framework of
the Finnish experiment, the universal income was 560 euros, the amount of the
basic unemployment benefit received by the members of the experimental group. Simply
replacing this basic allowance meant that at first the income of the unemployed
in the experimental group remained unchanged. But the universal income could at
the same time be cumulated with job income. This means that returning to work could
lead to an additional financial gain of as much as 560 euros.

The experimentation thus increased the
financial gains from a return to work. This is not a result that one usually thinks
of in relation to establishing a universal income. One question often asked is,
“What
happens when you get 1,000 euros a month without working?” It turns
out that, for those on low incomes, the generalized roll-out of a universal
income could have ambiguous effects on the incentive to work: it increases
income without work but it also provides additional income for the working poor.
On the other hand, for those earning the highest incomes, the monetary gain
from increasing their income would be reduced.

The evaluation was complicated by the
introduction of activation measures during the second year of the experiment
(2018). Based on the “activation model” put in place, people on unemployment
benefits had to work a certain number of hours or undergo training, otherwise their
benefit was reduced by 5%. These measures affected the experimental groups
asymmetrically: two-thirds of the control group were affected, compared with only
half of the experimental group (Van
Parijs, 2020). Theoretically, the incentive to return to work was therefore
greater for the control group. Note that activation goes against the principles
of the universality and unconditionality of universal income.

Notwithstanding the activation measure, the
results of the Finnish experiment tell us that the hours worked are higher for
the experimental group than for the control group. The financial incentives to
work would therefore have worked! In fact, the evaluators stress the moderate degree
of the impact on employment. In the interim report, which covered the first
year (2017), the impact was not significant. In 2018, the impact was
significant, since the people in the experimental group worked an average of 78
days, or 6 days (8.3%) more than the control group. The impact is, however, not
very significant: with a 95% confidence interval, it is between 1.09 and 10.96
days (i.e. between 1.5% and 15%). Kari Hämäläinen concludes:
“All in all, the employment effects were small. This indicates that for
some persons who receive unemployment benefits from Kela [Finland’s agency
handling benefits for those at end of entitlement] the problems related to
finding employment are not related to bureaucracy or to financial incentives”.
On the other hand, the experiment tells us nothing about the effects of
possible disincentives for higher earners due to the financing of the measure:
by construction, an experimental universal income is not financed. More
seriously, gender analysis is virtually absent from the final report. All we know
is, from reading a table, that women in the experimental group worked 5.85
additional days compared to 6.19 for men, but there is no discussion of the
issue of gender equality. The issue of how choices are negotiated within a household
is also not posed. The impact on the lone parent group is not significant
“due to its small size”. In an Op-Ed
published by the New York Times, Antti Jauhiainen and Joona-Hermanni
Mäkinen criticize the sample size, which is five times smaller than initially
planned: the small size makes it difficult to draw any conclusions about subgroups.

The final report highlights the beneficial
effects on mental health and economic well-being. The impacts on people’s life satisfaction
and on stress and depression are very significant. However, two comments can be
made. First, we do not know what comes from the higher living standards of the
individuals in the treatment group and what comes from the mechanism of a universal
income (the certainty that people will have an income whatever happens). Given
the way the experimental income was actually designed (it functions like an
employment bonus), one can easily assume that it is the income effect that
takes precedence. Likewise, since the individuals in the experimental group are
in all cases better off financially, it is not surprising that their economic
well-being increases. Second, there may also be a reporting bias due to a Hawthorne Effect:
individuals in the experimental group know that they are part of an experiment
and that they were chosen so that they have an advantage over the control group.
This can lead them to be more optimistic in their statements.

In the end, the Finnish experiment offers
few lessons about the effects of the establishment of a global universal
income, i.e. one for all citizens. Only a small category of the population was
involved, and funding was not tested. Yet funding is half the mechanism;
Finnish trade unions are also opposed to a universal income because they fear
that the necessary tax increases will reduce earnings from working. In
addition, a family and gender approach has been completely ignored, whereas a universal
income has been denounced by feminists as being liable to discourage women from
taking up jobs (likening it to a mother’s wage). As with the RSA income supplement experiment
in France [article in French], the failure of the Finnish experiment is
explained in part by the contradictory objectives of the various scientific and
political actors. The evaluators hoped for a sample of 10,000 people including individuals
with different employment statuses. They were constrained by a combination of time,
money and a ruling political coalition that was no longer enthusiastic about
the idea of ​​testing a universal income (“Why
Basic Income Failed in Finland”). The Prime Minister’s Centre Party
was in fact interested in the question of financial incentives for the
long-term unemployed, which is a long way from the idea of ​​reconsidering the
central role of market labour or being able to say no to low-quality jobs, which
is often associated with universal income. This was certainly a limitation of
these costly experiments: subject to the inevitable supervision of politics,
they risk becoming showcases promoting the agenda of the government in power.

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 Bruno Ducoudré and Pierre Madec

According to figures from the French statistics institute (INSEE) published on 12 May 2017, non-agricultural commercial employment in France increased (+0.3%) in the first quarter of 2017 for the eighth consecutive quarter. Employment rose by 198,300 in one year. Despite the improvement on the jobs front experienced since 2015, the impact of the crisis is still lingering.

Since 2008, employment trends have differed significantly within the OECD countries. Unemployment rates in the United States, Germany and the United Kingdom are now once again close to those seen before the onset of the crisis, while the rates in France, Italy and particularly Spain still exceed their pre-crisis levels. Changes in unemployment reflect the gap between changes in the active population and changes in employment. An improvement in unemployment could therefore mask less favourable developments in the labour market, in terms of employment behaviour (changes in the labour force participation rate and the “unemployment halo”) or an increase in precarious employment (involuntary part-time work, etc.). In this paper we take another look at the contribution of changes in participation rates and in working time duration relative to changes in unemployment rates and to a broader measure of the unemployment rate that encompasses the “halo of unemployment” and involuntary part-time work.

Unemployment rates are marked by the crisis and reforms

With the exception of the United States, employment rates have changed considerably since 2008. In France, Italy and Spain, the employment rate for 15-24 year-olds and for those under age 55 more generally has fallen sharply (Figure 1). Between the first quarter of 2008 and the last quarter of 2016, the employment rate for 18-24 year-olds fell by 19 percentage points in Spain, by more than 8 percentage points in Italy and by almost 4 percentage points in France, while at the same time the unemployment rates in these countries rose by 9, 5 and 3 percentage points respectively. The poor state of the economy in these countries, accompanied by negative or weak job creation, has hit young people entering the labour market hard. Conversely, over this same nine-year period, the employment rate of individuals aged 55 to 64 increased in all the above countries. In France, as a result of successive pension reforms and the elimination of the job search exemption, the employment rate of older workers increased by 12.3 percentage points in nine years to 50% in Q4 2016. In Italy, even though the labour market worsened, the employment rate of 55-64 year-olds has risen by almost 18 percentage points.

A sharp impact of the participation rate on unemployment, offset by a reduction in working time

During the course of the crisis, most European countries reduced the actual working hours to a greater or lesser extent by means of partial unemployment schemes, the reduction of overtime and the use of time-savings accounts, but also through the expansion of part-time work (particularly in Italy and Spain), including involuntary part-time work. On the other hand, the favourable trend in unemployment in the US (Table 1) is explained partly by a significant decline in the labour force participation rate of people aged 15 to 64 (Table 2). The rate in the last quarter of 2016 was 73.1%, i.e. 2.4 points less than at the beginning of 2007.

Assuming that a one percentage point increase in the labour force participation rate leads, holding employment constant, to a 1 percentage point increase in the unemployment rate, it is possible to measure the impact of these adjustments (working hours and participation rate) on unemployment, by calculating an unemployment rate at constant employment and controlling for these adjustments. Except in the United States, all the countries studied saw a greater increase in their labour force (employed + unemployed) than in the general population, owing, among other things, to pension reforms. Mechanically, absent job creation, this demographic growth has the effect of increasing the unemployment rate of the countries concerned.

If the labour force participation rate remained at its 2007 level, the unemployment rate would fall by 1.7 percentage points in France, 2.8 percentage points in Italy and 1.8 percentage points in the United Kingdom (Table 3). On the other hand, without the large contraction in the US labour force, the unemployment rate would have been at least 2.3 percentage points higher than in 2016. It also seems that Germany experienced a significant decline in the level of its unemployment (‑5.1 points), even though the participation rate rose by 2.8 percentage points. For an unchanged employment rate, the German unemployment rate would be 1.3% (Figure 2).

As regards working hours, the lessons seem quite different. It seems that if working time had been maintained in all the countries at its pre-crisis level, the unemployment rate would be higher by 3.4 points in Germany, 3.1 points in Italy and 1.5 points in France. In Spain and the United Kingdom, working time has changed very little since the crisis. By controlling for working time, the unemployment rate changes in line with what was observed in these two countries. Finally, without adjusting for working time, the unemployment rate in the United States would be 1 point lower.

Note that this trend towards a reduction in working hours is an old one. Indeed, since the end of the 1990s, all the countries studied have experienced large reductions in working time. In Germany, this decline averaged 0.5% per year between 1998 and 2008. In France, the transition to the 35-hour work week resulted in a similar decrease (-0.6% per year) over that period. Overall, between 1998 and 2008, working hours were down 5% in Germany, 6% in France, 4% in Italy, 3% in the United Kingdom and the United States, and 2% in Spain.

Beyond the “unemployment rate”

In addition to obscuring the dynamics affecting the labour market, the ILO’s (International Labour Organization) strict definition of unemployment does not take into account situations on the margins of unemployment. So people who wish to work but are considered inactive in the ILO sense, either because they are not quickly available for work (in under two weeks) or because they are not actively seeking employment, form what is called a “halo” of unemployment.

The OECD’s databases can be used to integrate into the unemployed category people who are excluded by the ILO definition. Figure 3 shows for the years 2008, 2011 and 2016 the observed unemployment rate, to which are added, first, people who are employed and declare that they want to work more, and second, individuals who are inactive but want to work and are available to do so. In Germany, the United Kingdom and the United States, changes in these various measures seem to be in line with a clear improvement in the labour market situation. On the other hand, between 2008 and 2011, France and Italy experienced an increase in their unemployment rates, especially from 2011 to 2016, both in the ILO’s strict sense of the term and in a broader sense. In Italy, the ILO unemployment rate increased by 3.4 percentage points between 2011 and 2016. At the same time, underemployment rose by 3.2 percentage points and the proportion of individuals maintaining a “marginal relationship” with employment by 1 percentage point. Ultimately, in Italy, the unemployment rate including some of the jobseekers excluded from the ILO definition came to 26.5% in 2016, more than double the ILO unemployment rate. In France, because of a lower level of unemployment, these differences are less significant. Despite this, between 2011 and 2016, underemployment increased by 2.4 points while unemployment in the strict sense grew “only” by 1 percentage point. In Spain, although there was notable improvement in ILO unemployment over the period (-3 points between 2011 and 2016), underemployment continued to grow strongly (+1.5 points). By 2016, Spain’s ILO unemployment rate was 7 percentage points higher than it was in 2008. By including jobseekers excluded from the ILO measure, this difference comes to 11.0 percentage points.

By Odile Chagny (IRES) and Sabine Le Bayon

A year and a half after introducing a statutory minimum wage, the German Commission in charge of adjusting it every two years decided on 28 June to raise it by 4%. On 1 January 2017, the minimum will thus rise from 8.50 to 8.84 euros per hour. This note offers an initial assessment of the implementation of the minimum wage in Germany. We point out that the minimum wage has had some of the positive effects that were expected, helping to reduce wage disparities between the old Länder (former West Germany) and the new Länder (former East Germany), and between more skilled and less skilled workers.By establishing recognition of the wage value of Germany’s “mini-jobs”, the minimum wage has made these marginal forms of employment less attractive for employers, representing a major rupture for the welfare state. But the minimum wage has also had some less fortunate results. Due probably to the flattening of pay scales at the minimum wage level, certain categories of employees in former West Germany seem to have suffered from the wage restraint that was imposed on them just before the introduction of the minimum wage, as companies limited the impact of the minimum wage on their total salary costs.

Unlike in France, there are no rules requiring an automatic annual revision of the minimum wage in Germany. It is adjusted only every two years upon a decision by the Commission. The decision taken on 28 June 2016 will take effect on 1 January 2017. There will then not be another revision until 2019, based on a decision taken in June 2018.

At first glance, the revaluation is fairly significant (+4% on 1 January 2017, i.e. a 2% annual rate) when compared to recent revisions of the minimum wage in France, where the SMIC, as it is called, rose by 1% per year over the last four years. This is due to the fact that, in accordance with the law establishing the minimum wage, the revaluation that takes place in Germany is made in light of increases concluded under collective bargaining agreements[1], thereby ensuring equivalent gains in purchasing power for all employees covered by a collective agreement. Since increases in negotiated wages have been relatively high since 2012 (+2.7% annual rate for the basic hourly wage index negotiated between 2011 and 2015, against +1.6% for the basic monthly wage in France over this same period), this automatically affects the minimum wage[2].

However, the level of the minimum wage is low and it is likely to remain so. It is much lower than the current level in France (9.67 euros since January 2016). According to the national accounts, this represented 34% of the average wage in 2015 (47% in France) and 48% of the median wage of full-time employees in 2014 (61% in France), which puts Germany in the lower range among the major European economies[3].

Nevertheless, even though set at a relatively low level, much was expected of the minimum wage’s ability to correct the very sharp wage segmentation in Germany[4], which points to the need to pay particular attention to the categories of employees who benefited from it.

Between 4 and 5.8 million employees were potentially affected by the introduction of the minimum wage in 2015

Somewhat paradoxically, it is difficult to get a clear picture of the actual number of employees who received less than 8.50 euros at the time the minimum wage was introduced. The most recent estimates vary between 4 million according to Destatis and a range of 4.8 to 5.4 million according to the WSI Institute (between 10% and 16% of the total workforce)[5]. This is because the law establishing the minimum wage left some uncertainty about its practical application. For instance, the law stipulates that the minimum wage of 8.5 euros per hour applies while taking into account the actual working time (knowing that there is no statutory work week in Germany), and it gives no precise definition of the pay elements to be taken into account (year-end bonuses, 13th month bonus, miscellaneous bonuses). On this point, following an employee’s complaint, on 25 May 2016 Germany’s Federal Labour Court ruled that a bonus previously paid once a year can be included in the calculation of the minimum wage when it is henceforth paid fractionally each month and this has been approved by a company agreement. This automatically leads to decreasing the number of potential beneficiaries.

While calculating the number of people receiving less than 8.50 euros is tricky, there is nevertheless relatively good agreement on estimates indicating that employees holding mini-jobs and employees in the new Länder just prior to the introduction of the minimum wage were the main ones affected. Thus, according to Destatis, 55% of the employees concerned were “mini-jobbers”, mainly in western Germany where they are the most numerous. In eastern Germany, the proportion of people earning less than 8.50 euros was twice as high as in western Germany (just over 20% of employees, around 10% in the old Länder). Not surprisingly, more than 80% of those working for less than 8.50 euros were in companies not covered by collective bargaining agreements, with twice as many women as men. Finally, catering and retail were the trades most affected, as approximately 50% and 30% of their employees earned less than 8.50 euros, according to the WSI in 2014.

1.9 million people were on the minimum wage in April 2015 according to Destatis

The minimum wage has partly fulfilled its mission by ensuring a “decent” wage for society’s most vulnerable people. If we stick to the Destatis estimate, while 4 million people received a wage of less than 8.50 euros in April 2014, “only” 1 million were in this situation a year later. Moreover, among the 1.9 million employees earning 8.5 euros in April 2015, the great majority of whom were undoubtedly earning less before the entry into force of the minimum wage, 91% worked in companies not covered by a collective agreement and 56% held mini-jobs.

A significant increase in wages in the new Länder and for mini-jobs

It is obviously too early to have microeconomic surveys with accurate information about changes in the salaries of those affected by the introduction of the minimum wage, so the main source used is the quarterly wage survey [6], which provides data on different job categories (conventional jobs, i.e. subject to social security contributions, and mini-jobs) and skills levels.

Based on this survey, it is clear that the implementation of the minimum wage undoubtedly led to raising the monthly wages of certain categories of employees in 2015: for conventional jobs [7] in the new Länder and for mini-jobs in western Germany (Table 1).

Hourly wages in eastern Germany rose especially quickly in 2015 for unskilled (+8.6%) and semi-skilled employees (+5.8%) compared to those with average qualifications (+4%), helping to reduce wage inequality in these German states. However, no such trend could be seen in western Germany regardless of the skills level.

Questioning the logic of mini-jobs

Given that 60% of employees holding mini-jobs received less than 8.5 euros per hour in 2014, one would expect a more marked acceleration of average earnings in this category of employees. The most likely reason why this was not the case is that the implementation of the minimum wage has de facto made these jobs less attractive for employers and led to a reduction in those workforce numbers and probably in the hours worked.

While mini-jobs are characterized by an absence of employee social security contributions and the acquisition of fewer employee rights, they are nonetheless subject to higher levies paid by employers (mainly social contributions and flat-rate tax on income) than in the case of a conventional job. As a result, the attraction for employers prior to the introduction of the minimum wage was due mainly to the flexibility offered by this type of employment as well as to the possibility of low hourly wages[8], as there was no limitation on working hours (the only constraint being the monthly ceiling of 450 euros).

However, by including mini-jobs within the coverage of the minimum wage, the law has made them much less financially attractive to employers because their hourly cost now exceeds that of a conventional job, including a midi-job[9] (see Table 2), with the number of hours implicitly capped (at 12 hours per week given the monthly ceiling of 450 euros).[10]

We therefore expect a reduction in the number of these jobs through simple destruction or reclassification as conventional jobs [11]. There has in fact been a sharp decrease in the number of mini-jobs since the beginning of 2015, especially mini-jobs that are the worker’s main activity, and an acceleration in the creation of conventional part-time jobs (graphic). The conversion into conventional jobs seems clear in the hotel, catering and retail trades, where mini-jobs had been prevalent and where conventional job creation has been particularly important. But although the conversion of mini-jobs into conventional jobs has been relatively high, it has not been massive, which is probably due both to a reduction in the actual hours worked so as to stay under the ceiling for mini-jobs (which for the employee has reduced the impact of a higher hourly wage) and to incorrect documentation of working time by the employer, with an underestimation of the hours worked[12]. The assurance that the legal conditions governing these jobs will be applied is even less certain given that the employee too may have a financial interest in non-compliance with the minimum wage, by accepting an underestimation of the number of hours so that their monthly wage remains below the 450 euro ceiling. The employee thus receives a net wage equal to the gross wage, which is not the case if the wage exceeds 450 euros and he occupies a midi-job, since the rate of the employee social contribution is then progressive and he becomes subject to conventional taxation (which depends on the employee’s family characteristics).

In the spring of 2015, 1 million people were still being paid below the minimum wage

The magnitude of the workforce still earning less than 8.5 euros after the implementation of the minimum wage raises several questions. This could of course be explained by the implementation deadlines and by the fact that various exemptions are allowed (long-term unemployed for the first 6 months of employment, employees in sectors providing for a transitional adaptation period – newspaper delivery, temping, the meat industry, hairdressing, agriculture, textile, laundry).

But we could also consider the actual capacity to implement the minimum wage in the “grey areas” of the collective bargaining system[13]. Among these 1 million workers, almost 80% were employed in companies not covered by collective agreements and 47% held mini-jobs.

This highlights the importance of official controls to ensure compliance, especially as the methods of calculating the hourly wage as defined by law and jurisprudence are problematic[14]. Parliament has provided for a requirement to report working hours, but this does not apply to all employees. Of course, for all mini-jobs and for those below a certain salary threshold[15] in certain sectors particularly affected by illegal work (construction, catering, passenger transport, logistics, industrial cleaning, meat industry, etc.), the employer is now required to record the start and end of each work day and the duration of work and keep these documents for two years to avoid circumvention of the law through unpaid overtime. But there are not many inspections, and the frequency even fell by about one-third in 2015 from 2014, even as the number of people affected by the minimum wage exploded.

A fairly moderate impact on the average wage of conventional jobs

More unexpectedly, it seems that some companies anticipated the coming into force of the minimum wage by slowing increases in unskilled wages in the months preceding the law’s implementation (recall that parliamentary elections took place in October 2013, and the minimum wage took effect in January 2015). The year 2014 was indeed characterized by a sharp halt to wage hikes for less skilled workers, which occurred in both the old and new Länder, a phenomenon that cannot be explained by objective factors related to the economic situation. This means, surprisingly, that certain categories of employees would have received higher wage increases in the absence of the introduction of the minimum wage.

To assess this, we simulated the hourly wages in 2014 and 2015 for conventional jobs on the basis of the 2010-2013 trend (i.e. before the minimum wage was officially incorporated into the coalition agreement of autumn 2013), and we compared the wage observed at end 2015 with the one simulated by type of qualifications and Länder in order to see which employees were overall losers or winners (Table 3).

While in the new Länder on average all
categories of employees benefited from the implementation of the minimum wage, with a diffusion effect from the minimum wage on wages immediately above 8.50 euros (and a revaluation of all salary scales), it seems that in the old Länder the least skilled categories suffered from its introduction. In other words, those whose salary was slightly higher than the minimum wage before the law took effect would have enjoyed a higher hourly wage in early 2016 on the basis of past trends!

This braking effect is such that at the level of Germany as a whole, and given the weight of the old Länder in the workforce (81% of conventional waged jobs), the unskilled and semi-skilled have therefore generally suffered from the introduction of the minimum wage, a situation that is somewhat paradoxical and which most observers have failed to highlight, focusing instead on the analysis of developments following the minimum wage’s introduction.

If the stated objective of the law introducing a minimum wage in Germany was indeed achieved, namely, to end a situation where a significant number of employees were on extremely low wages, there are 1 million people who have yet to benefit, i.e. a quarter of the workforce who were potentially concerned. There is also evidence that many companies anticipated the introduction of the minimum wage in the year before its introduction by making trade-offs in their wage policy in order to limit the impact on their costs. The result is that not all employees have been winners from the introduction of the minimum wage. What has taken place in Germany, especially in the old Länder, is a form of redistribution among unskilled workers between those who have benefited from the law [16] and those earning a little more than the minimum wage, who have experienced two years of wage restraint.

[1] For this initial reassessment, the Commission based itself on changes in the negotiated hourly wages (excluding bonuses) between December 2014 and June 2016, which was 4%, including the retroactive effect of the latest collective agreement signed for the civil service.

[2] Like employee purchasing power, inflation rates in France and Germany have been very similar over the same period: +1.1% annual rate over the period 2011-2015 in Germany, 0.9% in France for the HICP.

[3] M. Amlinger, R. Bispinck and T. Schulten, 2016 : “The German Minimum Wage: experiences and perspectives after one year”, WSI Report No. 28e, 1/2016.

[4] O. Chagny and F. Lainé 2015: “Comment se comparent les salaires entre la France et l’Allemagne?”, Note d’analyse no. 33, France Stratégie.

[5] By removing the exceptions: trainees, apprentices and those under age 18.

[6] This was conducted among about 40,000 companies with more than 10 employees (5 in some sectors such as retail or catering to reflect the specific characteristics of these areas) in industry and the service sector.

[7] This observation holds whether one is interested in the total monthly pay (including bonuses) or the hourly wage excluding bonuses, with wage increases of respectively 3.4% and 4% in 2015.

[8] B. Lestrade, 2013: “Mini-jobs en Allemagne. Une forme de travail à temps partiel très répandue mais contestée”, Revue française des affaires sociales, 2013/4.

[9] For these contracts, which pay between 450 and 850 euros, the contribution rate for the employer is that of a conventional job, while the contribution rate for employees is progressive, ranging from 10.9% to 20.425% based on the salary.

[10] Note that the average working time in 2008 for these jobs was 12.8 hours per week (D. Voss and C. Weinkopf, 2012, “Niedriglohnfalle Minijob”, WSI Mitteilungen 1/2012).

[11] For a midi-job, if the employee works between 12 and 23 hours weekly, and in a conventional job more than 23 hours.

[12] The most common strategies for circumventing the law in terms of working time are: unpaid overtime, payment for a task without fixed working hours and poor calculation of the time worked (on-call time, etc.). For more, see T. Schulten, 2014, “Umsetzung und Kontrolle von Mindestlöhnen”, Arbeitspapiere 49, GIB, November 2014.

[13] For more, see: “Allemagne. L’introduction d’un salaire minimum légal : genèse et portée d’une rupture majeure”, O. Chagny and S. Le Bayon, Chronique internationale de l’IRES, no. 146, June 2014.

Analysis and Forecasting Department (France team)

The 60,000 person decline in March for the number of people registered in Category A at France’s Pôle emploi job centre is exceptional. One has to go back to September 2000 to find a fall of this magnitude. There is some natural volatility in the monthly statistics for job seekers, but the fact remains that the trajectory has changed noticeably. In the last year, the number registered in Category A at the job centre rose by 17,000. A year earlier, from March 2014 to March 2015, the increase was 164,000. Better yet, over the last six months the number registered fell by 19,000.

Nevertheless, the number of Category A job seekers is a relatively poor reflection of the multiple dynamics at work in the labour market. If, in addition to job seekers registered in Category A, we add those working reduced hours (categories B and C), the March upturn remains visible, but smaller. The number registered in categories A-B-C falls slightly in March (8700 people) but also over 3 months (down 23,900).

Once again, however, beyond the good results in March, given the continuing deterioration of the labour market and the emergence of more precarious situations with regard to employment over the last eight years, there will be no lasting improvement in households’ job situation until these “good figures” have accumulated over a medium-term horizon.

More relevant statistical sources …

These monthly figures provide only a partial representation of unemployment. They omit in particular people seeking employment who are not registered at the job agency. As for those registered in Category A, people are also counted who are not performing a real job search because they are close to retirement (see The elimination of the job search exemption: When governments voluntarily increase the jobless count! – in French). In addition, the figures released by the job centre can be distorted by changes in administrative practices and by occasional technical problems that affect the management of the job centre’s files.

The quarterly figures provided by the INSEE are a more reliable source for the analysis of unemployment. According to the employment survey, a person is considered “unemployed within the meaning of the International Labour Office (ILO)” if he or she meets the following three conditions:

• being unemployed, that is to say, not having worked at least one hour during the reference week of the survey;
• being available to take a job within 15 days;
• having actively sought work in the month preceding the survey or having found a job that begins within three months.

Based on these criteria, the unemployment rate in metropolitan France in the fourth quarter of 2015 stood at 10% of the active population (+871,000 people since Q4 2007).

…that help to better measure the precarity of the labour market

But this definition is still restrictive. It still fails to take into account situations at the margins of unemployment. Thus people who want to work but are considered inactive in the ILO sense, either because they are not readily available for work (within two weeks) or because they are not actively seeking a job, form what is called the unemployment “halo”. In the fourth quarter, this halo included 1.41 million people (+25% over the fourth quarter of 2007, i.e. an additional 279,000 people).

Similarly, the strict ILO definition does not include people who are working part-time but want to work more, or people who are in a situation of partial unemployment. In the fourth quarter of 2015, these situations of “underemployment” involved 1.7 million people (up 18% compared to the fourth quarter of 2007, i.e. by 254,000).

In total, by incorporating underemployment and the “halo” into the strict definition of ILO-measured unemployment, 5.9 million people are in a weakened position with regard to employment, 31% more than eight years ago, i.e. 18.8% of the workforce broadly speaking (Figure 1) [1].

Multiform unemployment, with a transforming labour market

The analysis of the unemployment rate does not therefore include all the dynamics at play in the labour market. The increase in the number of people experiencing underemployment is partly explained by adjustments in the effective working time, via the policy on partial unemployment, the reduction of overtime and the use of working-time accounts, but also through the expansion of part-time work, including on an involuntary basis. While these adjustments increased underemployment, they also helped slow the rise in unemployment (in the strict sense) that started in mid-2008. Without these adjustments, in other words, if the hours worked had remained stable between 2007 and 2015, the ILO-based unemployment rate in France would have been 0.6 points higher in the fourth quarter of 2015 (Figure 2).

Along with these adjustments in working time, since the beginning of the crisis France has also experienced greater growth in the labour force (employed + unemployed) than in its overall population. This is attributable partly to the implementation of pension reforms that delay seniors’ exit from the workforce. Mechanically, without the creation of new jobs, this growth in the labour force has had the effect of pushing up the unemployment rate. In the case of France, the impact has been massive. Indeed, if the participation rate had remained at its 2007 level, the unemployment rate in France would be, all else being equal, 8.2%, i.e. 1.6 points lower than the unemployment rate observed in the fourth quarter of 2015.

It must nevertheless be noted that while these adjustments are important, the developments on which they are based are not fully due to the crisis. Indeed, there has been a tendency for working time to decrease since 1990. Between 1990 and 2002, the effective working time decreased on average by 0.9% per year. While this decline has certainly been less rapid since 2003, it is continuing (-0.2% per year). At the same time, the participation rate has been rising continuously, due to the combined effects of the increase in women’s participation in the labour market and the successive reforms of the pension system. The participation rate in France, which stood at 67.1% in 1990, reached 69.7% in 2007, and in the fourth quarter of 2015 had risen to 71.5%.

By Céline Antonin

At a time when the subject of labour market reform has aroused passionate debate in France, Italy is drawing some initial lessons from the reform it introduced a year ago. It should be noted that the labour market reform, dubbed the Jobs Act, had been one of Matteo Renzi’s campaign promises. The Italian labour market has indeed been suffering from chronic weaknesses, including segmentation, a duality between employees with and without social protection, high youth unemployment, and a mismatch between costs and labour productivity. Renzi’s reform takes a social-liberal approach, advocating flexicurity, with the introduction of a new permanent employment contract with graduated protection, lower social charges on companies, and better compensation and support for the unemployed. Although the initial assessment is surely positive in terms of both unemployment and job creation, there’s no cause for hasty triumphalism: the reform has been implemented in especially favourable circumstances, marked by a return of growth, an accommodative policy mix, and a stagnating work force.

Jobs Act Italian-style: The key points

The Jobs Act is actually the latest in a series of measures adopted since the Fornero Act of 2012 that are aimed at a more flexible labour market. Act I of the Jobs Act, the Poletti Decree (DL 34/2014), was adopted on 12 May 2014, but went relatively unnoticed because it targeted fixed-term contracts and apprenticeships. It allowed in particular extending the duration of fixed-term contracts from 12 to 36 months, suppressing gap periods, and allowing for more fixed-term contracts to be renewed, all while limiting the proportion of fixed-term contracts within a single company[1].

The real change came with Act II of the Jobs Act, for which the Italian Senate passed enabling legislation on 10 December 2014. The eight implementing decrees adopted in the first half 2015 have four key points:

– The elimination of Article 18 of the Labour Code, which allowed reinstatement in cases of manifestly unfair dismissal: the reinstatement requirement was replaced by a requirement for indemnification that is capped[2], with reinstatement still being required in case of a dismissal involving discrimination;

– The creation of a new form of permanent (open-ended) contract and graduated protection, lying between permanent contracts and fixed-term contracts: dismissal was facilitated during the first three years on the job, with severance pay that increases with employee seniority;

– The suppression of the abuse of what are called “collaboration contracts”, [3]precarious contracts that are often used to disguise an actual employment relationship, affecting about 200,000 people. These contracts will be transformed into wage labour contracts from 1 January 2016 (1 January 2017 for public administrations), except for a few limited cases;

– The reform of unemployment insurance, with an extension of compensation schemes. The benefit period, for instance, is extended to two years (from 12 months previously). As for compensation for short-time working (“technical unemployment”), this is extended to cover apprentices and companies with 5-15 employees[4]. A National Employment Agency (ANPAL), which introduces a one-stop system that helps to link training and employment, was also established.

Note that only measures related to experimentation with a national minimum wage[5], which are contained in the enabling law in December 2014, were not addressed.

Alongside the Jobs Act, Italy opted to lower taxes on labour: in 2015, the wage part of the IRAP (equivalent to a business tax) for those employed on permanent contracts was eliminated, reducing the amount of the IRAP by about one-third. Above all, Italy’s 2015 Budget Act eliminates social security contributions for 3 years on the new open-ended contracts with graduated protection, up to a limit of 8,060 euros per year for new hires taken on between January 1 and December 31, 2015 who did not have permanent job contracts in the six months preceding their hiring. This measure is expected to cost 3.5 billion euros between now and 2018. It was extended in 2016: companies that hire employees on the new permanent contracts in 2016 will be exempt from 40% of social security contributions for 2 years.

Strong jobs growth and a lower unemployment rate

There has been strong growth in employment, in particular permanent jobs, since the start of 2015: between January 2015 and January 2016, the number of employed increased by 229,000, with strong growth in the number of salaried employees (+377,000) and a decline in the number of self-employed (-148,000). Among employees, there was a sharp increase in the number of permanent positions (+328,000). The number of permanent employees has now returned to the 2009 level of 22.6 million (Figure 1); as for total employment, even if it has not yet reached its pre-crisis level, the decline in the 2012-2014 period has been overcome. At the same time, the annual rate of job creation has returned to its pre-crisis level, with growth of about 250,000 per year (Figure 2).

In addition to new hires on permanent contracts, the Jobs Act has led to replacing precarious jobs with permanent jobs with increasing guarantees. Thus, 5.4 million new jobs were created in 2015 (+11% compared to 2014)[6], mainly permanent jobs. Of the 2.4 million permanent jobs created, there were 1.9 million new open-ended contracts and 500,000 fixed-term contracts that were converted into open-ended contracts (including 85,000 apprenticeship contracts), up sharply from 2014. There were also fewer collaboration contracts (a 45% decrease from Q3 2014 to Q3 2015) and apprenticeship contracts (-24.6%). Note also the 4.3% increase in the number of resignations and the 6.9% decrease in layoffs.

The corollary to this jobs growth is a marked fall in the unemployment rate (Figure 3), which fell to 11.4% in the last quarter of 2015 (from 12.8% one year earlier). However, the decline in unemployment was also due to stagnation in the labour force in 2015, unlike previous years that were marked by the pension reform.

Uncertainties remain

Matteo Renzi seems to have won his bet. Yet this fall in unemployment should not be over-interpreted, as a number of positive factors have undoubtedly contributed to strengthening this trend.

First, there was a windfall effect related to the announcement of the exemptions on social contributions for hiring new permanent employees, which led some companies to put off new hiring planned for 2014 until 2015 (which led to a rise in unemployment in late 2014). Moreover, part of the fall in unemployment is related to the impact of replacing precarious short-term contracts with the new permanent contracts with graduated protection (see above). The question is whether the new flexibilities allowed by these new contracts will be used over the next three years, and consequently whether there will be an increase in contract terminations.

In addition, the stagnation of the work force (Figure 3) has significantly amplified the downward trend in unemployment. With the improvement observed in the labour market, we expect in the future that the growth in the workforce that began in the last quarter of 2015 will continue due to what is called in French an “effet de flexion”, or “bending effect”, [7] which would absorb some of the impact of the job creation in 2016 and 2017.

Furthermore, the Jobs Act was adopted when the economy was emerging from a recession, with a recovery that, while soft (+0.6% growth in 2015), still exceeded the growth potential [8]. The easing of fiscal constraints had a stimulus effect in 2015, which may partially explain the fall in unemployment. As for monetary conditions, they are particularly favourable, as Italy is one of the main beneficiaries of the quantitative easing measures taken by the ECB.

Notwithstanding these qualifications, it is undeniable that the cut in the social contributions level has had a positive impact. The February 2016 report of the National Social Security Institute (INPS) showed that, of the 2.4 million new permanent jobs created in 2015, 1.4 million benefited from exemptions on employer contributions, or almost two-thirds of these new jobs. Moreover, the reduction of precarious job contracts and their replacement by permanent contracts, even if they offer less protection than before, is a rather encouraging sign for access to long-term employment by groups that have traditionally been more marginal (self-employed, collaboration contracts).

Perhaps the main regret about this reform is the absence of a component aimed explicitly at vocational training, which is one of the main weaknesses of Italy’s labour market. The country holds a dismal EU record for the number of young people (15-24) who are neither in employment nor in school or training. Moreover, the workforce has insufficient training, and investment in research and development is low, which results in low productivity. It is legitimate to want to take action on labour costs and the duality of the labour market, but this will not be enough to solve the problem of productivity and the inadequacy of the workforce. Matteo Renzi would therefore do well to foresee an Act III in his labour reforms to finally pull the country out of its stagnation.

[1] See C. Antonin, Réforme du marché du travail en Italie : Matteo Renzi au pied du mur, [Labour market reform in Italy: Matteo Renzi with his back to the wall], Note de l’OFCE no. 48.

[2] The monetary payment is determined by a scale based on the employee’s seniority. It is equivalent to two months of the final salary per year of service, for a total that cannot be less than 4 months of salary and is capped at 24 months.

[3] “Intermediate status between salaried employment and self-employment, for workers not subject to a hierarchical subordination but ‘coordinated’ with the company and creator of certain social rights. These are self-employed workers who are, in fact, dependent on a single client company (which exercises limited management powers, for example in terms of the organization of work and the working time).” E. Prouet, Contrat de travail, les réformes italiennes [The job contract, the Italian reforms], France Stratégie, La Note d’Analyse, no. 30, May 2015.

[4] Other measures concerning short-time work (“chomage technique”) are also planned, including that an employee on short-time work may not have their hours cut by more than 80% of their total work hours. Furthermore, the period during which a company may resort to this procedure is a maximum of 24 months over five rolling years.

[5] There is no national minimum wage in Italy, with minimum wages instead set at the industry level, as was the case in Germany before 2015.

[6] This figure of 5.4 million represents gross job creation, including all forms of employment (including very short-term contracts), and without taking into account job destruction. In terms of net job creation between January 2015 and January 2016, we accept the figure of 229,000.

[7] When unemployment rises, working-age people are discouraged from reporting for the labour market. Conversely, when employment picks up again, some people are encouraged to return to the labour market, slowing the decline in unemployment; this phenomenon is called the “effet de flexion” in French, or the bending effect.

[8] Labour productivity tends to grow relatively slowly in Italy; consequently, an increase in production tends to create more jobs in Italy than in France for example, where labour productivity is higher.

Analysis and Forecasting Department (France team)

The unemployment figures for the month of January 2016 published by France’s Pôle Emploi job centre show a fall of 27,900 in the number of job seekers who are not working (category A), which follows an increase recorded in the month of December (+15,800). While this fall might seem encouraging (a decline of this magnitude has not been seen since 2007), it must be qualified. First, recent changes in administrative practices made by Pôle Emploi [1] have resulted in an abnormal increase in exits from the jobless rolls due to failures to update (239,000, against a monthly average of 207,000 in 2015). Second, the high volatility of the monthly figures in recent months is a sign of a labour market in which job creation is insufficient to reduce unemployment on a sustainable basis.

It is true that the increase in the numbers exiting the job centre due to regaining work (+ 5.1% over three months) is a positive sign, suggesting that the expected recovery is underway. Nevertheless, even though a pickup in employment has occurred, it has not been strong enough to halt the steady rise in the number of long-term unemployed (+9.1% in one year). Thus, in a context of near-zero average growth since 2008 and a continuing deterioration in the labour market, the share of the unemployed registered for a year or more in categories A, B or C has increased since mid-2009 (by 31% approximately) and is now at a historical high, representing 45.4% of all jobseekers in categories A, B or C (Figure 1).

This increase is explained by the rise in unemployment among older workers (+ 8.9% yoy): the implementation of a series of pension reforms (2003, 2010), coupled with the elimination of job search waivers for seniors, has led to prolonging the working life and to a later retirement age. In a context of weak growth, the increase in the employment rate of older workers has been insufficient to absorb the growth in the working population in this age group, with a consequent rise in unemployment among those over age 50 (see La suppression de la Dispense de recherche d’emploi: quand les gouvernements augmentent volontairement le décompte des chômeurs ! [The elimination of job search waivers: when governments voluntarily increase the unemployment count – in French].

The relative improvement in the labour market expected in the coming months would stem from a slight improvement in growth and from the implementation of a training plan for the unemployed, announced by President François Hollande in late December 2015. However, it will take a long time for this improvement to affect the long-term unemployed. Indeed, the time taken for a fall in the numbers of Category A jobless to be transmitted to the long-term unemployed is relatively long (Figure 2). In the late 2000s, a period that saw a significant drop in jobless numbers, it took almost a year and a half for the fall in Category A jobless to result in a significant drop in the number of the long-term unemployed. The mechanisms for a pickup in jobs are clearly subject to considerable inertia.

[1] Because of this change in methodology, the unemployed have had one day less to complete their updates, leading in practice to a significant increase in the number of those struck off due to a failure to update (+1.5% in three months).

Department of Analysis and Forecasting (France Team)

Since June 2015, the number of job seekers at the end of the month (the number of “DEFM”, in French) in Category A registered with Pôle Emploi has swung from month to month, rising and falling. This high volatility, which reflects a sluggish labour market in which there is insufficient job creation to make a long-term reduction in unemployment, is directly related to the sluggish growth in the French economy overall. So after a relatively favourable November 2015 (15,000 DEFM fewer in category A), December once again saw an increase in the number of unemployed (+15,800), offsetting the previous month’s fall. In addition, for the first time since May 2015, all age groups experienced an increase in the number of category A DEFM in December.

Ultimately, the number of jobseekers registered in category A with the Pôle Emploi job center increased for the eighth consecutive year in metropolitan France. With the return of higher growth, this increase has nevertheless been less than in previous years: +90,000 in 2015, versus +200,000 on average between 2011 and 2014. The increase has massively affected job seekers aged 50 and over (+69,000 in 2015), while the numbers under age 25 were down (22,000 fewer in 2015).

The implementation of successive pension reforms (2003, 2010), coupled with the elimination of exemptions on job-seeking by seniors, has led to a longer duration of economic activity and to putting off the age of retirement. In a context of weak growth, the rise in the employment rate for seniors has been insufficient to absorb the increase in the workforce for that age group, with a consequent increase in unemployment of those over age 50.

The decreasing number of unemployed young people is due to two main factors. First, the employment policies enacted since 2013 have targeted youth in particular through the Jobs of the future (emplois d’avenir) programme. Second, the low job creation in the market sector is mainly taking the form of temporary jobs (fixed-term CDD contracts, temping), a type of employment in which young people are heavily represented (34.2% of young people in employment are on CDD contracts or temping versus 8.4% for other age groups). This development can be compared to the observed increase in categories B and C (+170,000 in 2015 against 97,000 on average between 2011 and 2014). Thus, while some return to work has been observed, this has not resulted in exits from unemployment as measured by the job center, and has not led to halting the continuing rise in the number of long-term unemployed (+9.5% in a year).

The year 2015 therefore did not see a reversal in the unemployment curve. Recall that it takes a GDP growth rate of over 1.4% to create enough jobs to begin to roll back unemployment, and only an extended return to growth over that threshold would be sufficient to lead to a sustained drop in the number of category A jobseekers enrolled in the job center.