[Pascal-Emmanuel Gobry] Macron’s labor market reforms aren’t enough

Every French leader since the 1980s has been elected on a mandate to fight unemployment -- and failed. Whatever else he accomplishes, getting people into work is the one thing French President Emmanuel Macron will be judged on at the end of his term.

The Macron plan is basically a wish list of reforms that France’s senior technocratic elite has urged on its politicians for decades. The agenda involves a little bit of labor market deregulation and slight cuts to France’s extraordinarily high wage taxes, but its centerpiece is a plan worth 15 billion euros ($17.28 billion) to invest in training for workers and the unemployed.

The problem is that, even with some positive changes, Macron is failing to tackle the biggest cause of France’s stubbornly high unemployment: high employers’ costs. And the president can’t tackle those because he’s singularly focused on keeping French debt under control.

Macron is a firm proponent of the “skills mismatch” school of unemployment studies. This theory holds that the reason why there is unemployment is because job seekers don’t have the right skills relative to the sorts of jobs that employers hire for. There are many problems with this approach. The first is that most of the Macron plan elements have been tried, to varying degrees, and failed to move the needle.

Contrary to an enduring cliche, all of France’s governments since 2002 have passed laws to liberalize labor regulations. These were usually tweaks, given France’s protest-prone culture, but their cumulative effect over 15 years has been that by the time Macron was elected it was already much easier for bosses to fire workers, certainly relative to 2000. That didn’t bring down unemployment.

Similarly with worker retraining. The Enlightenment scientist and statesman Nicolas de Condorcet was one of the founders of the first public engineering school for adults in France. France’s first modern law making worker training a centerpiece dates from 1971, right in time for the bottom to fall out of the job market with the 1973 oil shock. Since then, eight separate significant reforms have been passed, starting in 1984; each saw increases in the amount of money spent to no discernible effect.

Macron’s reforms may dent the unemployment problem, but they won’t fix it. Loosening labor rules, no matter how desirable in the abstract, won’t fix that problem if it is still prohibitively expensive to hire low-skill workers.

Macron has shown no interest in changing that calculation. That’s not a surprise: He once worked for Inspectorate General of Finances, one of France’s most elite cohorts of technocrats, whose job is managing the government’s budget. IGF mandarins tend to see France’s problems in terms of deficits and debt. They also see themselves as the guardians of France’s budget credibility.

In keeping with his budget focus, Macron’s meager payroll tax cuts are set to be deficit-neutral, “paid for” by an increase in income taxes, meaning they will have no stimulative impact. Rather, he should eliminate all payroll taxes for employees under the median wage, with the costs to be recouped over time through higher growth and spending cuts. French voters will not hesitate to forgive him for breaking his election budget pledges if he gets France to close to full employment.

Macron might protest that France’s debt is too large, or that France has EU treaty commitments, and commitments specifically to German Chancellor Angela Merkel, to keep its budgetary house in order. France can afford this. Long-term, what makes debt burdens unbearable is low growth, which is France’s major problem; short-term, sovereign debt markets are hungry for more bonds and know that France is too big to fail.

As for EU commitments, France has always been exempt in practice from Europe’s Stability and Growth Pact (which sets limits on deficit and debt spending), despite being bound by it in theory. If Germany is so influential in Europe to begin with, it is precisely because it has such a strong economy. France will always be second fiddle to Germany if it does not start growing again. There is so much to gain from a different approach; all that is needed is political courage.


Pascal-Emmanuel Gobry
Pascal-Emmanuel Gobry is a Paris-based writer and fellow at the Ethics and Public Policy Center. -- Ed.

(Bloomberg)