“De-micardizing” France, a work of art without a “magic formula”

“Policies must not be radically changed overnight,” warns Étienne Wasmer, who on Thursday provided a progress update on the work he is carrying out with his colleague Antoine Bozio – their recommendations to the government are expected for the end of June. “There will be no magic formula,” insists Mr. Wasmer.

One thing seems certain: the drop in the unemployment rate since the introduction of reductions in charges for salaries close to the minimum wage is forcing the executive to reimagine this system designed in the early 1990s.

“It made a lot of sense at the time to say that the problem of labor costs arose”, with an unemployment rate approaching 20% ​​for the least qualified employees and exceeding 10% for the entire population. active, maintains Étienne Wasmer.

"The current context is quite different", he continues, with an overall unemployment rate which has fallen to less than 8%, but "residual pockets of unemployment" which persist, particularly among the youngest workers and the older.

The cost of tax reductions has also exploded, going from less than 0,5% of gross domestic product in 1993 to more than 2,5% of GDP in 2022 (i.e. more than 66 billion euros).

The calculation certainly does not take into account the jobs created - and the contributions paid on these jobs - but it is striking, at a time when the government is looking for an additional 10 billion in savings to make in 2024.

The reductions in charges have had another perverse effect: Antoine Bozio notes the growing "over-concentration" of jobs in a range going from 1 to 1,6 SMIC, that is to say where the reductions are the most generous and where a salary increase costs the most dear to employers.

Today, 17% of employees are on minimum wage (1.398,69 euros net) compared to 12% three years ago.

Enough to accredit the concept of "low wage traps" and "smicardization" of employees: to offer 100 euros more net salary to their employees with remuneration close to the minimum wage, certain employers would thus be forced to pay 400 or even 500 euros , certain reductions in charges disappearing with the salary increase.

“At the end of a system”

The solution could consist of targeting reductions in charges on the few remaining “pockets” of unemployment, rather than offering reductions indiscriminately.

At the end of March, Gabriel Attal said he wanted to "review the system of reductions in employer contributions" so that this would provide "more incentive to increase" low salaries.

For Étienne Wasmer, these more targeted policies “are things we need to think about”.

Antoine Bozio adds: "Sweden has put in place measures to reduce employer contributions for those under 25, there have been very clear and lasting effects on employment" for this segment of the population particularly affected by the unemployment.

Another example, "Finland implemented exemptions in regions where the unemployment rate was the highest. At the time of implementation, the effects were quite modest in terms of employment, but when the 2008 crisis was arrived, it had a very protective effect.”

According to Étienne Wasmer, the unions and employers' organizations agree on one point: "We have reached the end of a system".

But be careful not to act "too brutally", with employers regularly complaining about the "instability of the socio-fiscal system".

Without making formal recommendations at this stage, the two economists suggest upgrading the jobs already filled, and accentuating the increase in the employment rate.

A second objective shared by the government, which intends to once again tighten the unemployment benefit rules to strengthen incentives to return to work.

“We are two academics, we are not in the government,” emphasizes Antoine Bozio. “We will respond to the mission as best as possible, then the government will take it over or not.”