Increasing the overall employment rate: an essential resource for raising our standard of living

The BIT unemployment figures in France (excluding Mayotte) for the third quarter of 2024, recently published by INSEE, show, compared to the previous quarter, a slight increase of 35,000 people in the number of unemployed resulting in an increase also slight in the unemployment rate which rose from 7.3% to 7.4% of the active population. This weak development is described by INSEE as quasi-stability from the title of its press release. But the essential thing is not there. It is in the increase in the employment rate of the population aged 15 to 64, which goes from 69% to 69.1%.

A strong increase in the employment rate over the long period

It is in fact the employment rate which must be the main thermometer of public action in the field of the labor market, because it is this which directly impacts, with other factors such as productivity and demographics, the GDP per capita and therefore the average standard of living of the population. Certain countries like Belgium, although regularly and wrongly taken as an example by various unions, are distinguished by an advantageous unemployment rate compared to France (around 5.5%) but also by a lower employment rate. (less than 67%), which explains a level of GDP per capita close to ours, and therefore much lower than that of the Nordic and Scandinavian countries, Germany or the Netherlands.

The simultaneity, in the 3rd quarter of 2024, of an increase in the unemployment rate and the employment rate in France is explained by the increase in the average activity rate. This increase is clear for the two segments of the working age population on which strong policies have been deployed: young people aged 15 to 24, with for example the reforms of apprenticeship and vocational high schools, and seniors of 55 to 64 years old with, for example, pension reform.

The current level of the employment rate for the population aged 15 to 64 is, at 69.1%, the highest observed since 1975, the earliest date to which INSEE dates back in its publications. It was then 66.6%, and then experienced an almost constant decline, reaching a low point of less than 61% in 1994 and then rising again, although with a pause during the 2000s and an acceleration since 2015.

The age segment that has seen the strongest growth is that of seniors. For the population aged 50 to 64, the low point of the employment rate was reached in 1992 at 42.2%, once the effects of the reduction to 60 in the age of eligibility for employment rights had been fully realized. retirement decided at the beginning of the 1980s, and the current high point is 66.9%. Such an increase, very impressive because of nearly 25 percentage points, is undoubtedly largely explained by the pension reforms undertaken over the period, the effects of which are added to those of the trend increase in the activity of women. These pension reforms have thus resulted in the expected effects. Over the same long period, the youth employment rate has fallen significantly, by more than 18 points, from 53.8% in 1975 to 34.6% currently, with a low point of less than 28% in 1997. This marked decline is of course explained by the lengthening of the period of studies, the combination of employment and studies being rarer in our country than in many other European countries. But the increase has been very clear since 2016, of more than 6 points, with the youth employment rate increasing from 28.4% that year to 34.6% currently. It seems to have stopped in the last quarters, due to the exhaustion of the effects of reforms such as that of apprenticeship. The employment rate of the middle-aged population (25-49 years) has itself increased significantly by around 6 points over the long period, going from less than 77% in 1975 to almost 83% currently. This increase is mainly explained by the increase in the employment rate of women in this age group.

The increase in the overall employment rate observed over the long period, here since 1975, while not negligible, nevertheless remains of limited magnitude: around 2.5 percentage points. But the observed evolution is very contrasting between men and women. Over this long period, the employment rate for men has fallen by around 9 percentage points from 81.1% in 1975 to 71.9% currently. Over the same period, it increased by around 15 percentage points for women, from 51.7% in 1975 to 66.5% currently. Thus, it is the affirmation of women’s aspiration for financial autonomy and greater economic parity with men which is at the source of the increase in the overall employment rate and the average standard of living. which results. The current gap in employment rates between men and women remains significant, at around 5.5 percentage points, but it was more than 29 points in 1975. It has fallen almost continuously over the period and is expected to continue to do so. do, with the exit of culturally older generations from the working age population.

The economic deterioration should not lead to a relaxation of effort

Given a deterioration in the labor market situation, the overall employment rate could decline over the coming quarters and then rebound upwards when the economic situation improves afterwards. In this context, three economic policy directions seem appropriate.

First of all, limit the effects of economic deterioration, by temporarily facilitating trade-offs favoring employment rather than wages. It is in this logic that with Jacques Barthélémy, we recommend allowing collective performance agreements, signed in companies between the social partners, to temporarily reduce salaries below the conventional sector minimums but in compliance with the public order provisions such as the minimum wage (see our article in Les Echos of November 25, 2024).

Then, promote economic rebound and to do so restore confidence damaged by the current pitiful political divisions. This confidence is useful for stimulating household consumption demand and investment by French and foreign companies.

Finally, in the medium and long term, continue reforms aimed at increasing activity behavior, in particular in the three segments in which they remain weak compared to many advanced countries such as the Nordic and Scandinavian countries, Germany and the Netherlands. It is therefore a question of consolidating, strengthening and extending reforms such as those of apprenticeship, RSA, unemployment compensation or pensions, among many others.

Compared to many European countries, France appears to be a poor country: its GDP per capita is, for example, currently lower than that of Germany, 20% lower than that of Denmark or nearly 25% lower. to that of the Netherlands. The main cause of this gap is an overall employment rate lower than that observed in these countries, the gap mainly crystallizing in the three segments of the working age population: the low-skilled, young people and seniors. .

Catching up with the employment rates observed in these countries must be one of the major objectives of our economic policies. With the reduction in public spending, this catch-up would allow France to overcome its recurring public finance difficulties. We have calculated, with very conservative assumptions, that, for example, catching up with the employment rates observed in the Netherlands would make it possible to spontaneously increase annual public revenue by an amount equivalent to the sum of the two largest budgets of the State, namely National Education and Defense.

The alternative that presents itself to us is thus quite clear. France can remain a country with a low employment rate, poor compared to many other European countries, with limited ambition regarding financing and therefore the quality of its social model, its national education, climate transition and gains in purchasing power. The response to these difficulties often recommended by opposition parties, consisting of lowering the employment rate for example by repealing the latest pension reform and further redistributing income, appears here to be totally inappropriate. Modifying the sharing of the pie by more redistribution does not counteract the fact that the pie to be shared remains small, or is even reduced by the reduction in employment rates but also by the effects of the amplification of redistributive tax policies. France can also strengthen its employment rates, and thus increase average income and reduce the difficulties of financing its ambitions. This is the objective that must be sought, with of course the boosting of productivity gains, via innovation and investment, these gains constituting with the increase in the overall employment rate the other main channel of rise in average income in France.