Banque de France Bulletin no. 231: Article 6 Economic policies contributed to strong job creation in France from 2016 to 2019

By Aldama Pierre, Cochard Marion, Ouvrard Jean-François

Thematic: Economic research

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Economic research – From 2016 to 2019, the French economy experienced strong employment growth with the creation of over one million market sector jobs in the space of four years. Numerous reforms were implemented over the period which may have contributed to this dynamism: reductions in the cost of labour (the crédit d’impôt pour la compétitivité et l’emploi or CICE in 2013 and the pacte de responsabilité et de solidarité or PRS in 2015), the El Khomri Law in 2016, the executive orders on employment in 2017 and the Pénicaud Law in 2018. This article looks back at the effect of the decline in labour costs using the Banque de France’s forecasting and simulation model for France (FR-BDF). Assuming these measures were fully financed, we estimate that the labour cost reductions brought about by the CICE-PRS led to the creation of nearly 240,000 out of the one million market sector jobs created between end-2015 and end-2019, i.e. 24% of total job creations. This estimate is significantly higher than those published this year by France Stratégie (100,000 jobs in its microeconometric estimate for 2013-16 and 160,000 in its macroeconomic estimate for 2013-17). The difference can mainly be explained by the extended timeframe covered in this article, from 2013 to 2019. This underlines the need to bear in mind that economic policies can take a long time to fully take effect.

1 Over one million salaried jobs created in the market sector in France between 2016 and 2019

The dynamics of job creation shifted at the end of 2015 (see Chart 1). The growth observed in non-market sector salaried employment (public sector jobs and subsidized contracts) since 2012 was replaced at end-2015 by a significant upswing in market sector salaried employment, while non-market sector salaried employment stagnated or even declined.

Over the period from end-2015 to end-2019, close to 90% of new job creations were concentrated in market sector salaried employment, i.e. 1.007 million new jobs. The pace of growth in market sector salaried employment observed over these four years has only been exceeded twice in the last 40 years: in the early 1990s and then in the early 2000s.

This sharp increase in market sector salaried employment coincides with the introduction of major policies to reduce labour costs (see Box 1).

In this article, we examine the extent to which these policies can explain the French economy’s strong performance in terms of employment growth.

2 The dynamics in market sector salaried employment are consistent with business activity and real labour costs

We based our analysis on the market sector salaried employment equation from the Banque de France’s macroeconometric forecasting and simulation model for France (FR-BDF) – see Lemoine et al, 2019. Chart 2 breaks down the growth in market sector salaried employment according to the contribution of its different determinants in this equation: activity (market sector value added), the real cost of labour, working hours (see Box 2) and agents’ expectations (see appendix). The rise in market sector salaried employment appears to be consistent with the trajectory of its determinants: the unexplained share of employment growth is small. As would logically be expected, the two main contributors are the real cost of labour from the beginning of 2016 onwards, and then activity, which clearly takes over as the main driver from mid-2017.

However, it is not possible to fully measure the real effects of labour cost reductions on employment simply by analysing these econometric contributions. Cuts to social security charges (CICE-PRS) are not solely reflected in the contribution of real labour costs, as the measures also have an impact on activity and prices. Therefore, to estimate the full impact of the measures, we need to construct a genuine counterfactual scenario where this aid is absent. In addition, the reforms (the…