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Unemployment falls, but “the difficulties are ahead of us”

Unemployment reached, at the end of 2019, its historic lowest since 2008. Figures from the National Institute of Statistics and Economic Studies (Insee) published on Thursday, February 13, set the unemployment level at 8.1% of the active population (excluding Mayotte), or 2.4 million people. This drop, almost continuous since 2015, prompted the Minister of Labor, Muriel Pénicaud, to judge “Frankly attainable” the target of an unemployment rate of 7% by 2022.

But for the economist Mathieu Plane, from the French Observatory of Economic Conditions (OFCE), if these figures are very good, they must be put into perspective in view of the “Halo of unemployment”, a gray area which concerns an ever increasing number of people between unemployment and inactivity.

How do you explain this drop in unemployment?

Several elements can explain this drop which, with 0.4 point in a quarter, is strong. The first is that job creations are dynamic. With 40,000 net creations in the fourth quarter of 2019 and 210,000 over the year, we see a dynamic job market, despite the slowdown in growth. But these job creations alone do not explain the decline of 0.7 percentage point of unemployment over the year. With current demographics and growth, we should rather have a decrease of 0.4 or 0.5 point.

“The rise in the” halo of unemployment “is the black spot of the analysis”

Added to this is the phenomenon of the “halo of unemployment”, which has increased significantly (90,000 more people in 2019). These people are on the verge of unemployment, without overlapping the unemployment criteria within the meaning of the International Labor Office (ILO), the standard used by INSEE. This concerns people who wish to work, but who are not included in the statistics: either they are not immediately available for work or not actively looking for work. And this increase is the black point of the analysis.

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Why is the halo of unemployment a game-changer?

Its increase is bizarre. The halo of unemployment is increasing sharply, while the labor market is recovering with, since 2015, the net creation of one million jobs. However, normally, if the job market is dynamic, as it was in 2019, the halo of unemployment should also be reduced: people tell themselves that there are job opportunities and reintegrate. This increase is therefore difficult to understand, it is not a classic phenomenon. The question arises: will these people, who are no longer considered unemployed today, return to these statistics in the coming months? We must therefore be careful with these figures.

To come back to job creations, have recent labor market liberalization laws had a beneficial effect?

It is too early to assess it. Potentially, yes, but I would have reservations. These reforms, like the labor law (2016), aim rather to reduce the duality of the labor market by making the CDI (open-ended contract) more flexible to facilitate hiring on CDI, instead of precarious contracts (CDD, interim). This did not play much on the volume of jobs, but on the CDI rate, which increased in the fourth quarter of 2019.

How to explain these net job creations last year?

The figures benefit from the delayed effect of the tax measures of the previous five-year period, such as the CICE (tax credit for competitiveness and employment) and the responsibility pact, which have reached maturity and have helped to lower the cost of labor. Added to this, in 2019, the transformation of the CICE into lower social security contributions, which contributed to exceptionally pay businesses 20 billion euros. This boosted job creations in the first half of 2019. Added to this is the ramp-up of professionalization contracts, apprenticeships as well as training plans, but which are more marginal.

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There is also a strong improvement in the employment of seniors, for what reason?

“There is a phenomenon of global aspiration towards employment”

It’s quite difficult to answer simply. But, after several years of falling unemployment, all populations are benefiting. When there is 10% unemployment, mass unemployment, companies hire the easiest. With the current recruitment difficulties, they are once again turning to a workforce that they used less, like the seniors. If we see unemployment as a queue, it takes several years to see those at the bottom of the queue, and thus observe the decline in long-term unemployment and that of seniors – this is the case today. This means that there is a phenomenon of global aspiration towards employment.

See our graphics: Unemployment: a significant decline since the start of the Macron five-year term

With such a dynamic, is the government’s goal of reaching an unemployment rate of 7% in 2022 possible?

Our simulations tell us that it is not the highest probability, about one chance in six. Because the difficulties are ahead of us: growth forecasts are rather down, and fiscal policies to lower social security contributions and tax credits are, unless we are surprised, behind us. This does not leave much to grind and add the people in the unemployment halo, a number of which will return to the statistics. In short, the bet is not easy.

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