FRANCE NOW
(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://legifrance.gouv.fr
- 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
- A TOUR OF PARIS IN ALPHABET POEMS - D, D & E
- 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.
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