The Surprising French Employment Performance: What Lessons?

Although widely regarded as a textbook case of a rigid economy, in the late 1990s France was able to increase employment by 10 per cent within five years and to cut down unemployment by more than a fourth. This paper investigates what factors may account for this surprising performance. The evidence suggests a significant shift in the demand for labour, that can be partially ascribed to cuts in social security contributions introduced in the 1990s and to the later move to a 35 hours work week. Although a large proportion of companies reported difficulties in hiring, the sharp reduction in unemployment did not result in significant wage pressure. Nevertheless, new measures aiming at fostering labour supply were introduced in the early 2000s. The emphasis on stimulating labour demand that characterised French labour market policies in the 1990s was more successful than expected by observers. This lends support to the advocates of active labour market policies. However, the budgetary cost of this approach has also been high. Whether this strategy is sustainable in the medium run is likely to become increasingly an issue.