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France – Return to employment growth unlikely to be swift

23 September 2014

Since early 2012, the increase in the number of unemployed people in France has been almost uninterrupted, reports The Economic Intelligence Unit. In addition to the weakness of real GDP growth, unemployment is being elevated by demographic trends and structural rigidities in the labour market.

In comparison with previous downturns, French businesses have not shed jobs to the extent that might have been expected. This suggests that when the economy eventually returns to sustained growth, the resulting uptick in hiring may be slower and weaker than usual.

In the second quarter of 2014 the unemployment rate in France rose to 9.7%, according to the International Labour Organisation (ILO). This marks the highest level in 15 years and, unlike almost all other Eurozone countries, the rate has not yet begun to decline.

The increase in the number of unemployed people across France has been dampened by government-subsidised jobs for low-skilled, young, long-term unemployed people. This has had a significant impact on the unemployment trends across different age groups. In the two years to Q2 2014, the number of young jobseekers dropped by -1.3%, while the number aged over 49 increased by +34.7%.

Given the current lack of momentum in the French economy, unemployment is unlikely to decline before 2015. This represents a significant failure for the president, François Hollande, who staked his economic reputation on bringing unemployment under control and who claimed repeatedly during 2013 that the unemployment rate's upward trend was about to turn around.

Against a backdrop of ongoing fiscal pressure, government-subsidised jobs cannot durably offset job losses in the private sector. The public sector can only pick up the slack in the labour market in a patchy and stop-gap manner. In order for the French labour market to return to health, businesses need to resume hiring.

Real economic growth, however, is still too weak in France for a sufficient number of jobs to be created. France needs a minimum of +1.5% annual real GDP growth to fuel net job creation, which looks increasingly unlikely, as, in the first two quarters of 2014, the economy stagnated.