French News in English 

Published by France Now Association

Editor: Arvind Ashta

Editorial Committee:

W. W. Strangmeyer,

Emmanuelle Ashta




(French news in English)

January 1999, Monthly, Issue No. 21

(Only highlighted issues available for on-line consultation)

  • This month in the life of a proletarian
  • Political and economic briefs
    • The FN steals the show
    • Charles Millon - Political Actor of the Year 1998
  • SNCF - a long strike
  • Zero French inflation
  • Unemployment crashes below 12%
  • The Euro has come
  • Sales! Sales! Sales!
  • A new twist on simplification
  • www://
  • Social Security Financing Act passed
  • Family Welfare Allowance age limit increased
  • Old-age and Invalidity Allowances
  • Social Security ceiling raised
  • The outcasts strike again
  • Boosting the supply and demand for legal labour of long-term unemployed
    A tale of two decrees
  • Thomson Multimedia - Big deals
  • Crédit Lyonnais (CL)
  • Auguste Comte (1798-1857): Positivism
  • The irregular immigrants: another 80,000 seeking regularisation
  • The Jealousy Sheet
  • Marylise Lebranchu! What happened to your 37 propositions?

Social Security Financing Act passed

The law for financing this year's social security has been passed. Six articles of the law voted by the Parliament were declared unconstitutional by the Supreme Constitutional Court (Conseil constitutionnel). The law contains 47 articles divided into two main chapters: resources and expenses. The latter are divided into seven sections. The first four sections concern the different branches of social security (family welfare, illness, old-age, work-accidents) and the others are common provisions.

The two tables summarise the total receipts and expenses of the different regimes. Medical insurance expenses for all the basic compulsory regimes are budgeted at FF 629.8 billion for 1999, an increase of 2.6% over the preceding year.

Some of the provisions or the act are listed below:

* A reserve fund has been created within the Fund of Old-age Solidarity (FSV) to take care of France's major social security headache: more and more retired people drawing a pension thanks to increase in life-span and reduction of retirement age. The unutilised receipts of the CSSS (a special contribution for solidarity paid by companies) will be poured into this reserve fund. The government expects FF 2 billion to be allocated to the reserve fund in 1999. The reserve fund will also be financed by surpluses from the solidarity section of the FSV.

* The exemption given for employers' contribution to social security for the first employee has been extended for three years till end-2001. The government indicates that more than 70,000 new recruits benefit from this measure every year for an average of 21 months. Of course, more than 70,000 employers also benefit from this measure every year. From now onwards, the exemptions will be capped relative to the SMIC (France's minimum wage of F 40.22 per hour) as in the case of Employment Initiative Contracts, Qualification Contracts and Employment Solidarity Contracts. A ceiling on the exemption will yield an extra receipt of FF 130 million.

* Similarly, the old, the disabled and the poor with children do not have to pay the employer's contribution for the help engaged in their house. This would also be true for the employees of enterprises engaged in providing service at the domicile of the old and invalids.

* The family welfare allowance given for the second child was limited to people earning less than a certain ceiling. This is now being restored to all. The extra cost of this measure is FF 4.68 billion Francs. The government takes care to point out that part of the expense (FF 3.9 billion) will be neutralised by the Taxation Bill for the year which proposes to reduce the ceiling of benefits from the family quotient.

* Another 180 million Francs will be spent on the School Starting Allowance given every year to certain poorer families for their school going children. This included families who were getting the Personalised Housing Assistance, the Adult disability Allowance or the RMI. Now, the base is being widened to include 350,000 other poor families too.

* The expenses for the detection of serious illnesses will be reimbursed by the Social Security to the tune of 100% because it is expected that early detection will reduce the cost of the treatment.

* A new national system of information for all the different regimes of medical insurance is being created. This will enable the government and, eventually, health professionals to know what each doctor has been prescribing so that they can better control their expenses. The danger lies in pharmaceutical companies getting access to this information and promoting their marketing efforts by targeting specific doctors.

* 3000 doctors have already taken advantage of the MICA, an incentive mechanism for doctors to stop practising. The measure is being extended by five years but will be available only to specified categories of doctors in specified regions. This ensures that geographical equilibrium is not distorted and that scarce specialists in remote corners of the country don't decide to opt for this benefit.

* Pharmacists are being encouraged to switch brands recommended by doctors to generic equivalents which may usually be 30% cheaper. FF 4 billion of economies are expected from the measure.

* If the non-certified enterprises in the pharmaceutical industry as a whole grow faster than the government's objective, than these non-certified pharmaceutical enterprises will have to pay a "Contribution". The rate of the tax is based on the rate at which industry grows. The tax is then redistributed among the enterprises based on their turnover (30%), the growth rate (40%) and the sales promotion and advertising expenses (40%). New enterprises don't have to pay this contribution for the first two years.

* The benefit of death insurance capital is being extended to the legal beneficiaries of people who were salaried employees three months before their death, those getting the invalidity pension and those getting a pension due to an accident at work or a professional disease. This is expected to cost FF 270 million.

* The salaries and pensions are indexed based on the expected increase in the consumer's price index for all commodities except cigarettes.

* In view of the unemployment problem, retired people getting a pension are not allowed to work for remuneration. This provision is being continued for the next year.

* Normally, to claim compensation for professional illnesses there is a period of limitation, i.e., the compensation must be claimed within a certain period of leaving an employer. But since certain diseases, especially reaction to asbestos, take years to manifest, the period of limitation is now being revised to take effect from the time the patient first learnt of his illness and its relation to a profession. The benefits will not be provided retroactively.

Boosting the supply and demand for legal labour of long-term unemployed

A tale of two decrees

Of the three million people unemployed, 1.1 million have been unemployed for more than a year. The State is trying to get these people off the dole and into work. The problems are two-fold. Firstly, those who haven't worked for a long time get used to handouts, lose confidence and don't want to work for fear of losing their handout for not much more. Secondly, employers don't want such people. At first thought, one would think that the State comes in here, trying to motivate these long-term unemployed to work and motivating employers to recruit them. On reflection, it turns out that the State is only trying to legalise a situation which already exists. It has issued two decrees recently. This article looks at the economic effects of the two decrees.

Consolidated Employment Contracts: stimulating demand for long-term unemployed

After the Solidarity Employment Contracts (1990, for beneficiaries of RMI, Specific Solidarity Allowance, Single Parent's Allowance, etc.) and the Employment Initiative Contracts (1995, for unqualified people between 18 and 25 years of age), the government has now created the Consolidated Employment Contract to reimburse private employers for hiring people. The terms of the stimulant are similar to those of the Youth Employment scheme introduced last year for the public sector establishments.

The idea is to stimulate the employment of those unemployed for a long time (more than 12 months in the preceding 18 months) or those difficult to hire (more than 50 years of age). This includes people on the RMI, ASS, Single Parent's Allowance, Widow's allowance and other long term unemployment doles.

For this scheme, people need to be engaged for at least 30 hours a week, but even contracts for 10 hours per week will be allowed with the Prefect's prior approval. The duration of the contract has to be fixed beforehand.

The employer is reimbursed 60% of the cost of hiring the person for the first year, 50% for the second, 40% for the third, 30% for the fourth, and 20% for the fifth year. The benefit is calculated on a base of Gross Salary plus contributions for unemployment insurance, subject to a maximum gross salary of 120% of the SMIC (the minimum wage). In addition, the employer does not have to contribute for the employee's social security, work accident insurance and family welfare insurance to the extent of 30 hours of work and 120% of SMIC.

As an example, if an enterprise were to pay someone a gross of FF 7,000, he would normally cost about FF 10,000 to the enterprise after including social security contributions. But those falling into this new contract would cost, just as a very rough example, FF 3,200 (7,000 - 60% of 8,000 1,000). The example assumes that employer's contribution to unemployment insurance is FF 1,000 and medical insurance is also about FF 1,000. So, the employer is willing to recruit many more people at a given salary because his real cost is much less.

In the figure, the Demand curve for labour of the long-term unemployed is represented as AB. After the decree, the demand curve for the labour of the long-term unemployed shifts outwards. For those offered more than SMIC 20% also, there is a reduction in the cost (fixed at the percentage associated with 120% of SMIC). Since the reduction is fixed, we have just shifted the curve up parallel to the curve before the decree to WX. But for those getting between 30/39 of the SMIC and SMIC 20%, the reduction in cost is proportionate and the curve rotates outward, but less than the fixed amount, and is shown as XY.

But once all the employers' needs are met, for all those for which he is willing to pay less than the SMIC associated with 30 hours, i.e., for part-time help, there is no State aid and the employer's demand falls drastically to come to the same demand curve as before. There is thus a huge kink in the demand curve represented by a dotted line YZ. Thereafter, once the kink meets the original old curve, this curve continues at ZB. We take care to repeat that these demand curves are those for legally declared labour. The demand curve for irregular labour, those who work in the parallel economy, is not represented.

The State also offers to reimburse part of any professional training cost subject to a maximum of 400 hours of training.

Working on the dole: boosting declared labour supply

The Socialists have also been working on ways to get the unemployed to work. Now it is clear that the long-term unemployed have no interest in working at the minimum wage «SMIC» (see last month's review of François Bourguignon's article): not only do they lose their long term doles, but also housing assistance and other benefits reduce significantly. They prefer to work for «black money»: undeclared. The government finds it is not only paying such people a dole, it is also not receiving any contribution towards social security. It wants to recuperate at least the latter. So, the Socialists would like these unemployed people to keep their doles if they agree to work legally part-time at least. The dole can be kept for a year.

What is part-time work? How many hours? The government has fixed it as 750 hours per year. This works out to 62.5 hours a month as compared to 169 hours considered as full-time work. But the amount of dole allowed to be retained along with the income from the part-time job involves complicated calculations varying with the kind of dole one is on.

If a person is on RMI (Revenu Minimum d'Insertion), and if he or his conjoint or other dependants start working, the entire income can be kept till the next quarterly revision. During the first trimestrial revision, a 50% abatement is given on the income of the preceding month. The same is done for the next three trimesters. The allowance can even be continued thereafter if the RMIst has not attained the ceiling of 750 hours worked and if he has an insertion contract or if he can prove that he may soon be absorbed in the occupation. The whole calculation starts ab initio, if the person does not receive any income for a whole quarter. The beneficiaries of the Employment Solidarity Contracts or those on the Insertion Contracts have an abatement of 33% of their income till the end of their contracts. For those RMIsts who are getting the benefit of Art L. 351-24, income from taking over or starting a new enterprise is not counted for the first two trimesters. For the third and fourth semesters, there is an abatement of 50% of the income.

Similar to the RMIsts, the income of single-parents is not taken into consideration till the next trimestrial revision. Thereafter there is an abatement of 50% for the preceding trimester's income. The beneficiaries of the Employment Solidarity Contracts or those on the Insertion Contracts have an abatement of 37.5% till the end of their contracts. For those single-parents who are getting the benefit of Art L. 351-24, income from taking over or starting a new enterprise is not counted for the first two trimesters. For the third and fourth semesters, there is an abatement of 50% of the income, itself estimated as 50% of the reference base.

The income obtained from a professional activity can also now be cumulated with the minimum doles accorded by articles L.351-9 (Insertion Allowance) and L. 351-10 (Specific Solidarity Allowance) of the Labour Code. This can be done for a period of 12 months from the start of the activity. Every calendar month in which such an activity is carried out, even at a reduced level, is takeninto consideration in calculating these 12 months. If during the 12 months, the total number of hours worked does not reach 750 (as compared with 2028 for full-time work, i.e. 37%), the person can apply in advance for the minimum dole to be continued till he reaches 750 hours of work. In such a case, he must justify that he is in the process of being absorbed by the activity. For those above 50 years of age, there is no time limit of 12 months. The beneficiaries of the Employment Solidarity Contracts or those on the Insertion Contracts can keep both their pay and the dole for the whole period of the contract, the dole being reduced by 60% of the remainder. For those already on the job, the balance period is calculated by reducing each month by 65 hours.

In economic terms, the government has managed to lower (shift outwards) the supply curve of legal labour of the long-term unemployed. Now, they would be willing to work at low pay-scales on part-time jobs. But for full-time jobs, the old supply curve would remain. In the figure, the start of the original supply curve is determined by the fact that no one wants to work for less than what he would get by doing nothing. Thereafter, a lot of people would be ready to work, perhaps part-time, and it is only for full-time monthly SMIC jobs that the number of people ready to work would really shoot up. However, with the application of this new decree, people would be ready to work at least part-time for even small revenues. Even if they get jobs for only one hour a month. In the graph, N represents the point at which all the long-term unemployed are working 750 hours a year. Beyond this point, there is a kink because people lose all their doles and benefits and so their behaviour is not affected by the new decree. The difference between the curves OP and OP* is just to indicate a point. If the unemployed were allowed to retain all their doles if they work part-time, then they would probably all be ready to work part-time at a monthly wage equal to NP. But since they will be losing part of their dole, according to the decree, they would need to earn more before they all agree to work part-time: they would need to be paid OP* a month.

Please note that there may not be any real change. For the moment, the work is still being done but the supply is not declared. The shift of the curve would only be the shift of the legal supply of labour.The eluded equilibrium

The government has boosted supply of legal part-time labour. The supply of full-time employment seekers remains the same. The government has increased the demand for legal full-time (almost equal to the new 32 hour week) employment of the long-term unemployed. The demand for legal part-time help has not been affected. It would be normal to indicate the supply curve and the demand curve for the long-term unemployed on the same graph. Unfortunately, our information sources are inadequate to do so with any accuracy. But the problem is more complicated than just a question of determining what levels of working man-hours are associated with different parts of the curves and where the two curves meet. This is because the people who are willing to work full-time and those willing to work part-time may not be the same and the employers willing to recruit full-time and part-time may also not be the same.

If there are two different segments of the population who are looking for full-time and part-time work and two different kinds of employers looking for full-time and part-time help, the government will have managed to leave everybody frustrated. Those on the dole are now ready to work legally part-time but nobody wants them. The employers are willing to hire full-time legally but not many really want to work that much for the SMIC.

Nevertheless, what we can appreciate is that the government has taken a first step to accept the situation and, instead of moralising, is taking steps to offer a legal way out to those who still suffer from guilt.

Whatever happens, more and more people will soon like to be on a permanent allowance, working when they please, whenever the dole does not satisfy their immediate needs. For this, one merely has to get fired. And anyone knows how to provoke this. Thereafter, one merely has to wait patiently. So, whether the government likes it or not, it will soon come to our notion of a resident's allowance, by whatever name called. After all, even employers would like to be insured of a fixed income. The financing of such a dole will be discussed later.