Towards the end of the active minimum wage policy?

Since its reform in the early seventies, the minimum wage (MW), called from then the SMIC ("salaire minimum interprofessionnel de croissance", i.e. inter-professional index-linked growth minimum wage) has played a crucial role in the French wage setting institutions – along with the legal extension of collective agreements, which is also a key pillar of the system. It has increased a lot since the beginning of the seventies, both in real and relative terms. This may be a key factor to understand why France has not experienced an increase in wage inequalities during the last three decades, contrasting with many anglo-saxon countries as the United Kingdom (until the 2000s) and the United States - where workers at the bottom of the wage distribution have witnessed a fall in their earnings -, but also with Germany – where the share of low wage workers has increased dramatically since the end of the 1990s (Bosch and Weinkopf, 2008).One consequence is that France may be one of the countries where the "penniless/jobless" trade-off epitomized by Paul Krugman (1995) in the mid-nineties is more accurate. Indeed, unemployment has been high and persistent during the last twenty years, and many have pointed out the potential role of the high labour cost – underlining that France suffers from a job deficit in activities intense in low-skilled work, particularly personal and household services. To countervail the potential negative impact of the SMIC on employment, several policies have been adopted since the mid-nineties – from general employers' social contributions reductions to targeted tax credits to foster the consumption of household services. But the political decision not to decrease the earnings of the workers at the bottom of the wage distribution was adopted, and defended by all the governments since then – whatever their political orientations. This choice concerned not only the hourly earnings (the SMIC being defined on an hourly basis), but also monthly earnings – as illustrated by the big hikes of the hourly rate in the beginning of the 2000s, to compensate for the reduction in the weekly working time (from 39 to 35 hours).Even if there is a strong social consensus supporting the SMIC, the debates concerning its role in the French wage setting system is still vivid at the end of the 2000s. There is some evidence that the SMIC may have contributed to the weakening of the social dialogue on wages – the bargaining over low wages being "crowded out" by the very active minimum wage policy. Revitalizing wage bargaining is becoming a priority – in a country where the bottom wage levels of pay scales in many branch collective agreements are below the SMIC, and therefore not enforced. Some progress has been made in that sense since the mid-2000s.Section 2 presents the fixing mechanisms and the coverage of the MW while section 3 depicts the evolution of the MW within the global income context. Section 4 analyses the impact of the MW on the French labour market and, more specifically, on the vulnerable workers. Section 5 focuses on the interplay between the MW and collective bargaining, and is based on two case studies. Section 6 concludes.