Otto-von-Guericke-Universität Magdeburg
- Faculty of Economics and Management -
Chair of Public Economics

Active Labour Market Policy: The Case of France

Bachelor Thesis

by Nicole Ketzler

Date of submission: 2006-08-08

Abstract

This paper deals with active labour market policies in France. It presents an overview over the situation on the French labour market and over the development of ALMPs in France. The theory of marginal productivity of labour is used to demonstrate how real wage and employment are determined in the labour market, in equilibrium and disequilibrium, and how active labour market policies might affect the labour market. On the basis of three evaluation studies, the impact of ALMPs on the employment probability of the participants is examined. The focus is on youth programmes and on measures for long-term unemployed and low-skilled workers. The results show that the effects of active measures are dependent on many variables. The outcomes indicate that solely programmes with an intensive on-the-job training content seem to have had positive effects in all periods under consideration. The results of workfare programmes and off-the-job training courses are rather ambiguous.
 

Table of Contents

1 Introduction ... 1

2 The French Labour Market ... 2

3 Active Labour Market Policies ... 4
3.1 Definition ... 4
3.2 ALMP in France ... 6

4 The Theory of Unemployment ... 11
4.1 The Cost of Unemployment ... 11
4.2 Unemployment in France ... 12
4.3 The Components of Unemployment ... 14
4.4 Marginal Productivity of Labour Theory ... 16
4.5 Theoretic Effects of ALMP ... 23

5 Empirical Evidence on the Effects of ALMP ... 26
5.1 Bonnal et al. (1997) ... 26
5.2 Fougère et al. (2000) ... 28
5.3 Brodaty and Fougère (2002) ... 30

6 Conclusion ... 32

Bibliography ... 34
 

1 Introduction

In the 1960´s, the French economy was at virtually full employment, and many people knew unemployment only from theory.

Since then, the picture has changed dramatically. Starting in the early 1970´s, the unemployment rate kept rising, interrupted by only temporary breaks, from 2.7% in the year preceding the first oil crisis to the peak of 11.9% in 1996.¹

The recessions, provoked by the oil crises of 1973/1974 and 1979, were accompanied by great upsurges in the unemployment rate. However, contrary to the business cycles of the 1950´s and 1960´s, the unemployment was persistent and did barely decline in the following recoveries and booms.

In an attempt to curb the rising unemployment, which was first expected to be only short term, active labour market policies (ALMP) were progressively introduced in France since the mid-1970´s. As it became clear that the unemployment was not solely due to cyclical reasons but had an important structural component, and that aggregate demand policies alone would not solve the problem, the notion of active labour market policies changed and they were increasingly promoted as a principal means to combat unemployment.

The proportion of Gross Domestic Product (GDP) devoted to those active policy measures totalled 0.66% in 1985. In 1993, the amount was up to 1.17% of GDP, reaching 1.38% in 1999.² However, despite the substantial expenditure allocated to ALMPs, these programmes which were “designed to help the unemployed back to work”³ seem to have had only little, if any, significant impact on the unemployment figures.

Based on three microeconomic evaluation studies, this paper reviews empirical evidence on the impact of active labour market programmes in France focussing on youth measures and programmes for low-wage workers as well as the long-term unemployed. Section 2 gives a brief description of the French labour market. In Section 3, ALMPs are defined and an overview over the development of active policy measures in France is presented. Section 4 discusses the theoretical effects of ALMPs on the basis of microeconomic models while section 5 presents the empirical evidence. The conclusions are summarized in section 6.
 

2 The French Labour Market

One of the most striking features of the French labour market is that the employment rates at both ends of the age distribution, i.e. of the 15-24 year-olds and the 55-65 yearolds, are very low. Standing at 23.2% and 34.3%, respectively, both rates are well below the average of the Organisation for Economic Co-operation and Development (OECD), whereas the employment rate of prime age workers (25-54 year-olds) is slightly above OECD average with 78.3%.⁴

One explanation for the decline in youth employment, which stood at about 41.8% in 1979⁵, could be the increase in educational enrolment.

However, others argue that the reasons are more likely to be economic factors since other OECD countries have also seen a rise in the number of students without such a sharp decrease in youth employment.⁶

While the reasons for the low employment rate of younger workers remain somewhat unclear, the reduction in the number of older people who have jobs can be explained by the introduction of a couple of reforms whose goal was to bring down unemployment. The reforms, such as the lowering of the official retirement age from 65 to 60, the introduction of special unemployment benefits and early retirement schemes for older workers, aimed at encouraging the withdrawal from the labour force to decrease labour supply.

[...]

1 CESifo Dice Database.

2 OECD (1996), p. 207; (2001), p. 11,24; (2004), p. 321.

3 OECD (2001), p. 11.

4 OECD (2004), p. 297.

5 OECD (1996), p. 187.

6 see OECD Observer (2003), p. 2.