Unemployment in France - Essay Example

? UNEMPLOYMENT IN FRANCE by of the of the of the School 24 June 0 Introduction The economic situation of unemployment in France has been a choking issue to the growth and development of the nation’s economy. Unemployment has taken the centre stage in past political campaigns, with leaders making promises on lowering the unemployment rate. It was evident with former president Nicolas Sarkozy before his election in 2007, and was atop agenda in the 2012 May elections between him and the current president, Francois Hollande (RFI, 2012). As the second largest economy in the Eurozone, France’s trend in unemployment seemed to have staggered in the last one decade, but is highly escalating, especially since the end of 2011. France was among the nations’ worst hit by the global recession in 2008, which left its economy struggling. The nation sunk deep into crisis and had to be bailed out by the international monetary fund (IMF), to try position the economy into balance. France contributes a great share of unemployment in the entire EU economy. As of May, France marked the 24th month of growing unemployment, with 5.1 million people unemployed (jobseekers and including partially employed persons in France oversees), as the president struggled to revive the economy that was already in a recession in the first quarter of the year 2013 (RFI, 2013). Unemployment figures for 2012 and 2013 indicate more than 10 % growth, which has begun to cause tension among the citizens. Occurring in France, it is clear that unemployment is a problem affecting even the nations with considerable industrial activity. The youths are the majority, and besides having an impact on the economy, joblessness continues to be a personal and social problem. In the past 3 years, some quarters recorded zero growth rate of unemployment, and though the awaited hope after the elections, numerous companies have announced a substantial number of layoffs, which is actually an indication of a worsening situation in the labour industry (BBC, 2012). (France Unemployment, n.d.) Many blame the former government, but much has to be done in the current leadership to reverse the situation, and at least keep the rate below a figure of 3 million. This paper focuses on the issue of unemployment in France, with a bias on the youth and the government strategies in place to counter the problem. Unemployment has merged with other economical problems to influence the performance of the general economy, causing quandary within households, social settings, organizations, and the authority in one way or the other. France is no different and has various socio-economic structures that cause unemployment; hence, the demand and supply of labour in its economic organization would guide in understanding the insufficiency and scarcity of jobs in the labour market. Youth unemployment has been the highest in France, as more skilled personnel have increased in the labour market. This adds to the frictional unemployment that the government has been juggling with, in the economy. 2.0 Discussion on the Economic Problem/Issue Causes of France’s High Rate of Unemployment Inflexible labour markets: It is not surprising that a powerful and industrialized country, such as France has always had a higher average unemployment rate than most of its competitors. France, though small in population, has been recording an increasing and constantly higher rate of unemployment than the US economy. France has had quite a rigid labour market, which has its benefits and shortfalls with the changes in the internal and global economy. It is one of the European countries termed to be inflexible in its labour market policies and institutions that hinder its economic efficiency, full productivity, and competition. During the last global recession, the risks and benefits of labour market rigidity and flexibility came out clearly. France’s rate of unemployment rose by 1.5 percent, compared to the US 5 percent over the course of the recession; however, the flexible labour markets like that of the U.S later manage to keep their rate of unemployment lower in the long term (Tasci and Zenker, 2011). The fact is that France inflexibility is a benefit, in case of such economic shocks, but explains the weakness of the strategy in the outcome of its labour market. It hinders the country’s capability to respond to the economic changes with immediate effect. The inflexible labour market in France causes high youth unemployment, consequently interfering with the employment and wage adjustment to the changing demand in the market (livingeconomics.org, n.d.). Basically, the strictness of the labour market institutions, regulations, and policies deployed, all have an impact on the unemployment rate. Employers find it difficult to adjust to the market opportunities when need be, or become very cagey to an extent of becoming defensive in hiring new employees, due to the onerous labour regulations imposed. France’s strict labour market policies and arrangement end up interfering with companies and employers operations, which impede their will to recruit and create more job opportunities. Similarly, policies that affect employees’ taxations, insurance, wages, and other incentives arising from the rigid labour market and government policies block the required conditions for flexible labour market and substantially contribute to high rate of unemployment. Unemployment benefits: France has numerous compensation benefits for the families and individuals of registered workers, and its citizens. Individuals can hence claim for unemployment benefits if they lose their jobs and had a record of paid insurance back in France. Because of the generous benefits, this affects the wages of the individuals, since the replacement rate would influence their decisions to seek employment (Mason, 1995). Similarly, the capacity of France’s economy to respond to deteriorating economic shocks reduces with the upheld incentive structure of the benefit system. These benefits end up reducing the rate of growth in employment, even as they act to reduce relative poverty. Compared to the short term benefits, generous long term unemployment benefits as those in France led to the increasing long term unemployment. People take advantage of the government assistance, claiming for the benefits in defence that they are still looking for work, while they are not. Minimum wage: Employers cannot risk employing people with insufficient skills in exchange for the high minimum wage in France. France minimum wage is higher than most of the European Union countries, or even the U.S. Just in the year 2012, the French government opted to increase the minimum wage twice, in effort to boost the consumer spending (dw.de, 2012). However, as the hike occurs, many jobs are lost and unemployment increases, especially in any small struggling industries and businesses. When the government imposes higher minimum wages than the market rate, it reduces the chances of employment for the insufficiently productive. This affects the unskilled, semiskilled, and lower age group employment opportunities in France. The rising minimum wage of France that has a relationship with the rate of joblessness, explains the persistent unemployment issue as explained below. In the graph below, in the labour market, the intersection of W* and L* marks the equilibrium, where the quantity of labour demanded is equal to the labour supplied from the workforce. When minimum wage hikes (Wmin), lesser demand for labour from the market exists. Demand shifts from L* at equilibrium to LD, leaving a good number of interested labourers jobless. Other factors include employers’ tax wedge, agreements between employers and unions, cost of capital, and other government interventions that contribute to various forms of unemployment in France. (Jacobine, 2012) Impacts of Unemployment Society: A substantial number of youths among the people end up idle in their own country. Even with good education and potential skills, because the employment is scarce, they feel they have no future. They are forced to live under difficult situations because of the unemployment, and some end up being subjects to poverty, especially when they have no existing guardians. Take an example of Sevran and other sensitive urban zones that record exorbitant unemployment rates, issues of poverty, drug dealing and trafficking, not to mention other crimes that are common social problems that affect the people in the regions (economist.com, 2013). Misguided conducts like excessive alcohol intake, among other behaviours among the unemployed youths and adults are common in France. With the growing number of foreigners, who add up to the rate of unemployment in France, crime is inevitable, as the youths execute most of them for survival. Crime rates have risen in the past few years, as youth unemployment has increased, reflecting the close association between unemployment and crime in the French society. Economically: France’s population is very high, but the large number of unemployed individuals prevents the country from achieve its full productivity. The general output is the product of active engagement of limited number of personnel, who are lucky to be employed, whether in France or in foreign nations. Often, France’s high unemployment influences companies and consumers’ spending and investment, which end up interfering with the nation’s economic growth (theage.com.au, 2005). Unemployed and working individuals would rather cut back on spending to save for future expenses. This means that in the aggregate level, the GDP would be affected to shrink the economy. On the other hand, both French tax payers and the government suffer, as they pay some benefits to the unemployed in the country. These generous unemployment benefits take a big share of the national resources to cater for the unemployed, which contributes to the increasing debt and budget deficit (theage.com.au, 2005). It means the longer the population of France remains unemployed and the greater it is, the more the government has to set aside more money to meet various needs. The youths are the young and vibrant people in the population, yet the most in unemployment. They are termed as the lost generation, but as employment opportunities continue to get scarce, they pose a political threat to the government. Most European nations have witnessed youth protests on the streets, for lack of jobs as promised by existing governments. France is also towards the verge of such chaos, which is a risk factor that can trigger not only social, but the political instability. Such kind of an occurrence occurred in 2006, when protests led by students and labour unions, caused closure of government offices and public institutions over the issue of labour laws and unemployment (O’Kane, 2011). The current president, Francois Hollande promised to lessen unemployment, but as things are getting out of hand, with unemployment rates increasing, the public criticising, as well as cases of fear and lack of confidence towards the government that reflect the developing tension within the society. 3.0 Government Policies to Solve the Problem Reasons for the Policies With employment being a major concern for the current government, the government has used an open approach to boost both the businesses and employees. The French government entered in agreements with several labour unions to improve flexibilities for businesses and companies, and employees’ security (Labiad, 2013). The strategy was to give employees some rights that would benefit them by securing their jobs and lengthening the duration of their contracts. Employees can also benefit from the granted professional training rights, and high unemployment rate can be countered through the heavy regulations agreed on and imposed on the business contracts. Another strategy was the use of the generous subsidies to firms and businesses that hire employees in age range between 16 and 25(Simons, 2013). The program intended for companies to create more contracts that would employ the people, especially the high number of skilled youths. When the government provides subsidies to firms, the cost of employment is lowered in companies, but the employees wage is not interfered with. In the general effect, employment increases, this has a benefit in increasing aggregate household incomes, consumption demand, and growth in economy. The wage subsidies offered to employees through the employing firms from the governments as incentives to employ more workers, cause an employment effect. Its occurrence causes a large employment effect, in the case of high elasticity from point A to B, and small employment effect in low elasticity from D to E as illustrated in the graphs below (Burns, Edwards, and Pauw, 2010). (Burns, Edwards and Pauw, 2010) The new tax credit approved by the French government will promote employment and competitiveness in firms. The tax credit will be dependent on the employees remuneration paid by the business and the limit placed on the minimum legal wage. Other ways are through supporting apprenticeship and continuous training systems, so that the unemployed and employed remain relevant and skilful to the jobs in the market. Firms will continue being required to allocate a percentage of their wage to train their employees when need be. Other measures under negotiations are reforming the pension system to control the deficit and create room for employment of more people. The general aim is focused on reforming the labour market. Comment on Effectiveness and Shortcomings The government, companies, and unions have collaborated to reform the labour market, but there is lack of coordination among them. The agreement made between the government and unions was supported by various unions, while others shun down the negotiations and agreement. This illustrates lack of commitment and full cooperation among the involved labour bodies. Some reforms on the pension system, like increasing the retirement age is heavily opposed by the young people and the trade unions in France, because they reduce chances of employment to incoming expatriates and potential citizens (euractiv.com, 2010). Most of the approved policies have not taken effect to create employment. In short, the estimated economic growth hoped to occur parallel with employment may not be a realistic with the economic crisis in European regions, and occurring inflation quarters in France. To change the labour market in France, the labour law and institutions have to be made more flexible than they currently are. 4.0 Conclusion France’s unemployment has turned into an unpleasant situation over the last decade. Even with a new government in place, the deteriorating economic situation and unemployment worsen the living standards of the population within. The escalating unemployment rates pose an economic threat in economic growth and spending in France, while the issues of crime, poverty, and misguided behaviour among youths are increasing among the young generation in the society of France. The causes of unemployment in an industrialized nation like France result from generous unemployment benefits, set minimum wages, government intervention, and rigid labour market laws and institutions. The government has placed some policies to resolve the problem by supporting apprenticeship, reforming pension systems, providing generous subsidies to companies, improving firms and business flexibilities, generation contracts, employees’ securities, and tax credits based on the minimum wage level from employers. Reference List [France Unemployment rate], 2013. [image online] Available at: http://www.tradingeconomics.com/france/unemployment-rate[Accessed 21 June 2013]. BBC, 2012. French Unemployment tops 3 Million as Economy Struggles. [Online] Available at: http://www.bbc.co.uk/news/business-19733992 [Accessed 21 June 2013]. Burns, J., Edwards, L., and Pauw, K., 2010. Wage Subsidies to Combat Unemployment and Poverty. 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