Economic Policy Reforms 2019

France

The gap in GDP per capita relative to the upper half of OECD countries continues to widen. Potential GDP per capita growth has fallen due to slowing employment growth and weak labour productivity gains.

Inequality, as measured by the Gini index, has been contained over recent years and remains below the OECD average. Lower-income households hold a larger share of national disposable income than on average in the OECD. Greenhouse gas emissions per capita are relatively low, but exposure to air pollution is elevated in some cities.

The government increased the role of social dialogue, improved legal certainty for dismissals and streamlined worker representation in 2017, addressing the respective 2017 priority. It also reduced social contributions, while increasing in-work benefits. The 2018 reform of lifelong learning, apprenticeships and additional public spending will ease access to training for low-skilled and unemployed workers. In disadvantaged neighbourhoods, class sizes in the first grades have been halved and additional funding will be available for pre-school. The reduction of the compulsory school age to three years will also reduce early social disparities. The government ordered specific expenditure reviews to lower public spending.

Quickly implementing structural reforms to raise the efficiency of public spending and improve its targeting would improve well-being, and help lower the tax burden. Reducing the recurrence of short-term contracts and improving youth labour market integration would raise inclusiveness. Developing the foreseen quality control system for training providers would ensure an effective use of lifelong training. Lowering entry and firm growth barriers would improve resource allocation, productivity and employment.

Growth performance, inequality and environment indicators: France

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

Statlink

Policy indicators: France

Source: Panel A: OECD, Taxing Wages Database; Panel B: OECD, PISA Database.

Statlink

Beyond GDP per capita: France

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

Statlink

France: Going for Growth 2019 priorities

Reduce further labour market segmentation. Reducing the excessive use of short-term contracts and improving school to work transitions would raise inclusiveness and strengthen youth employment prospects.

• Actions taken: The government improved legal certainty for dismissals. Social partners negotiated industry-specific measures to reduce the use of short-term contracts in 2018. The government intends to modulate unemployment insurance contributions as a function of employers’ use of short-term contracts in some sectors and to reform the rules of unemployment insurance, notably for those having repeated short-term employment spells. In 2018, the government regionalised career guidance in initial education.

• Recommendations: Evaluate industry-specific measures to reduce the use of short-term contracts. Restrict the accumulation of unemployment insurance rights during repeated temporary jobs. Streamline the schemes for helping young people to find jobs. Ensure career guidance takes place at schools from an early age and involve social partners.

Improve the equity and quality of education. Individualised support for weak students and improved lifelong learning would strengthen skills and employment.

• Actions taken: In 2017, class sizes of first grades have been reduced in disadvantaged primary schools and additional funding will be available for pre-school until 2022. The compulsory school age was lowered to three years in 2018. The 2018 reform of secondary schooling and the initial vocational track will put more emphasis on skills and guidance. The 2018 lifelong learning reform and additional public expenditures should improve access to training for unemployed and low-skilled workers. The 2018 reform also foresees to set quality standards and to ease the use of workers’ personal training accounts. Another reform eased apprenticeship procedures for students and employers and transferred the management of apprenticeship centres to social partners. The government also increased the salary bonus for staff in disadvantaged schools in 2018 and will make pre-primary education compulsory for three year olds in 2019.

• Recommendations: Continue to reduce class size for other grades in disadvantaged neighbourhoods. Raise the availability of pre-school places in disadvantaged neighbourhoods and strengthen their allocation to increase the take-up of low-income children. Promote innovative practices in teacher training to meet the different needs of pupils. Offer attractive salaries and career prospects to excellent teachers in disadvantaged schools. Develop apprenticeships in secondary schools. Set and enforce quality standards for lifelong training courses.

Reduce regulatory barriers to competition. Easing firm entry and growth would boost competition, productivity and jobs, notably in services and network sectors.

• Actions taken: In 2018, the government reorganised the railway sector to open up the passenger-transport sector to competition. It streamlined workers’ representations for larger firms and required industry-level labour agreements to take into account the needs of smaller firms. A pro-business law (loi PACTE) was legislated in early 2019 simplifying firm entry requirements, smoothing regulatory thresholds and reducing entry barriers in craft occupations.

• Recommendations: Ensure an independent assessment of the impact on competition of draft laws and regulations. Reduce entry barriers, quotas and exclusive rights in other regulated professions, and create the same conditions for Sunday trading everywhere.

Reduce labour taxes. Lowering the tax wedge across the board will translate into employment gains without creating low-wage traps.

• Actions taken: The government reduced the tax wedge by shifting some social security contributions to a broader tax base in 2018. Permanent employer social security cuts around the minimum wage will replace a wage-based tax credit in 2019. In 2017, the government lowered recurrent property taxes and capital taxation and increased environmental and tobacco taxes.

• Recommendations: Streamline labour cost reductions by translating them into contribution cuts across the board financed by efficiency gains, spending cuts and by increasing taxes on other bases, notably through reduced tax expenditures.

1Strengthen public spending efficiency. Local administrative fragmentation and weak efficiency of some expenditures lower well-being and raise the tax burden.

• Recommendations: Build on ongoing expenditure reviews to meet the ambitious targets to reduce public spending. Streamline local government organisation by merging small municipalities. Allocate responsibilities of local infrastructure and urban planning to municipality groups to deal with environmental and other spillovers. Move towards a single pension system to improve labour mobility and lower management costs.