O E C D E c o n o OECD Economic Surveys m ic S u r v e FRANCE y s V APRIL 2019 o lu m e 2 0 1 9 / 1 0 F R A N C E A p r il 2 0 1 9 OECD Economic Surveys: France 2019 This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2019), OECD Economic Surveys: France 2019, OECD Publishing, Paris. https://doi.org/10.1787/a0eee144-en ISBN 978-92-64-98744-9 (print) ISBN 978-92-64-96408-2 (pdf) OECD Economic Surveys ISSN 0376-6438 (print) ISSN 1609-7513 (online) OECD Economic Surveys: France ISSN 1995-3178 (print) ISSN 1999-0235 (online) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. 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TABLE OF CONTENTS 3 │ Table of contents Executive summary .................................................................................................................... 11 Key policy insights ..................................................................................................................... 17 Economic growth has peaked .................................................................................................... 22 The economic outlook has weakened, but remains positive ...................................................... 22 Financial risks ....................................................................................................................... 28 Better use of public spending to boost growth and well-being ...................................................... 31 Key economic and social challenges remain ............................................................................ 31 Reducing public spending and improving their efficiency ........................................................ 36 Making taxes more favourable to employment and productivity ............................................... 48 Ensuring environmental sustainability .................................................................................... 51 Improving productivity, employment and social mobility ............................................................ 54 Product and services market reforms would boost growth ........................................................ 54 Boosting innovative business investment ................................................................................ 60 Strengthening skills through initial education .......................................................................... 63 Bibliography ............................................................................................................................ 67 Thematic Chapters .................................................................................................................... 73 Chapter 1. Improving labour market performance .................................................................... 75 Implementing the OECD Jobs Strategy ...................................................................................... 75 The labour market has improved but challenges remain............................................................... 76 Those with few qualifications and young people face the most difficulties.................................... 82 Employment and inequality have polarised ............................................................................. 82 Wages have decoupled from productivity................................................................................ 88 The labour market needs to be transformed successfully .......................................................... 93 Strengthening and adapting people’s skills ................................................................................. 95 Promoting lifelong learning and skill acquisition ..................................................................... 95 Increasing support for those in the greatest difficulty ............................................................. 100 Improving young people’s move into employment ................................................................ 103 Encouraging job quality and productivity gains ........................................................................ 109 Improve incentives to work for low wage earners .................................................................. 109 Reducing labour market duality ............................................................................................ 112 Strengthening collective bargaining ...................................................................................... 121 Limiting inequality and improving support for low incomes ...................................................... 128 Better co-ordinating and simplifying support for low income households ................................ 128 Reducing gender bias at work .............................................................................................. 131 Bibliography .......................................................................................................................... 136 Chapter 2. Improving the efficiency of public investment ........................................................ 149 Overview and challenges to public investment .......................................................................... 151 The stock of public capital is extensive and its quality is high… ............................................. 151 …but a stronger focus on maintenance and on a thorough selection of investment projects is needed ................................................................................................................................ 152 Local governments are responsible for the majority of public investment and the private sector could play a bigger role ....................................................................................................... 153 Investing for the future ........................................................................................................ 155 OECD ECONOMIC SURVEYS: FRANCE 2019 © OECD 2019 4 TABLE OF CONTENTS │ Strengthening framework conditions for effective public investment .......................................... 158 Towards a better prioritisation and selection of investment projects ........................................ 158 Leveraging the private sector in the provision of infrastructure ............................................... 163 Strengthening local government capacities for public investment............................................ 165 Better maintenance and greener investment in transport and energy ........................................... 169 Improving transport infrastructure investment ....................................................................... 169 Promoting appropriate energy infrastructure.......................................................................... 176 Encouraging digitalisation and innovation ................................................................................ 181 Fostering a faster transition towards digitalisation ................................................................. 181 Getting the most out of public investment in R&D................................................................. 184 Bibliography .......................................................................................................................... 191 Tables Table 1. Macroeconomic indicators and projections ....................................................................... 23 Table 2. Low probability events that could lead to major changes in the outlook .............................. 27 Table 3. Potential impact of some ongoing reforms on GDP per capita after 10 years1 ...................... 34 Table 4. Potential impact of some reforms proposed in this Survey on GDP per capita after 10 years1 ................................................................................................................................... 35 Table 5. Fiscal indicators .............................................................................................................. 37 Table 6. Fiscal consolidation efforts since 2007 ............................................................................. 38 Table 7. Main government tax and spending structural measures ..................................................... 40 Table 8. Past OECD recommendations to reduce public spending and boost its efficiency ................ 46 Table 9. Past OECD recommendations for a tax system promoting sustainable growth ..................... 48 Table 10. Illustrative fiscal impact of OECD-recommended reforms ............................................... 51 Table 11. Past OECD recommendations to improve environmental performance .............................. 54 Table 12. Past OECD recommendations to improve the business environment ................................. 63 Table 13. Past OECD recommendations to improve learning outcomes of disadvantaged children..... 65 Table 1.1. New apprenticeships and professionalisation contracts.................................................. 108 Table 1.2. Recruitment on temporary contracts and TWA employment per 100 employees, 2017 .... 120 Table 2.1. Public investment by main function ............................................................................. 152 Table 2.2. OECD’s principles for effective public investment ....................................................... 158 Table 2.3. Municipal investment ................................................................................................. 166 Table 2.4. France’s road transport network: selected figures ......................................................... 173 Table 2.5. The nuclear fleet is ageing .......................................................................................... 178 Figures Figure 1. France’s productivity is high, but its growth lags peers ..................................................... 17 Figure 2. France has many assets .................................................................................................. 18 Figure 3. Slow income gains, low employment and high public debt are key challenges ................... 19 Figure 4. Growth has peaked ........................................................................................................ 24 Figure 5. The labour market is improving ...................................................................................... 25 Figure 6. Rising wages support household income and consumption ............................................... 25 Figure 7. Core inflation remains subdued....................................................................................... 26 Figure 8. Export performance is disappointing ............................................................................... 27 Figure 9. Structure of exports........................................................................................................ 28 Figure 10. Evolution of macro-financial vulnerabilities .................................................................. 29 Figure 11. Non-financial corporate debt has continued to increase ................................................... 30 OECD ECONOMIC SURVEYS: FRANCE 2019 © OECD 2019 TABLE OF CONTENTS 5 │ Figure 12. Housing market developments ...................................................................................... 30 Figure 13. Well-being indicators are mixed.................................................................................... 31 Figure 14. Income and wealth disparities are contained but social mobility is weak .......................... 32 Figure 15. Labour productivity growth has steadily declined ........................................................... 33 Figure 16. Illustrative gains of some structural reforms along the income distribution ....................... 36 Figure 17. The French public deficit and spending remain high ....................................................... 37 Figure 18. Structural reform and further consolidation are necessary ............................................... 39 Figure 19. French metropolitan areas are fragmented...................................................................... 41 Figure 20. Evolution of average urban population density by country .............................................. 42 Figure 21. Public spending on pension is set to decline together with replacement rates .................... 44 Figure 22. The public sector wage bill is high ................................................................................ 45 Figure 23. Tax breaks for the estate tax are large ............................................................................ 47 Figure 24. VAT revenue shortfalls are large ................................................................................... 48 Figure 25. Business taxation is hefty ............................................................................................. 49 Figure 26. Green growth indicators - France .................................................................................. 52 Figure 27. Average effective tax rates in the road sector have increased ........................................... 54 Figure 28. The distributions of management quality and firms size are skewed ................................ 55 Figure 29. Resource misallocation has increased, while investment disappoints ............................... 56 Figure 30. Estimated labour productivity gains from policy reforms reducing skill mismatch ............ 57 Figure 31. Service trade barriers remain important in some key sectors............................................ 58 Figure 32. Product market regulations remain stringent in some sectors, 2018 .................................. 59 Figure 33. Perception of corruption risks ....................................................................................... 60 Figure 34. Business investment has stagnated, despite generous R&D support ................................. 61 Figure 35. The shift towards high skilled employment is expected to continue ................................. 64 Figure 36. Expenditures on pre-primary and primary education are low ........................................... 64 Figure 37. Pedagogical training and teacher teamwork are weak ..................................................... 66 Figure 1.1. The labour market has improved .................................................................................. 76 Figure 1.2. Some aspects of labour market inclusiveness show room for improvement ..................... 79 Figure 1.3. Inequality is attenuated by taxes and social transfers...................................................... 80 Figure 1.4. The labour market presents some structural weaknesses................................................. 81 Figure 1.5. Population's skills are unequally distributed .................................................................. 82 Figure 1.6. Employment is more polarised, but wage inequality has been contained ......................... 83 Figure 1.7. The unemployment rate has remained stubbornly high................................................... 84 Figure 1.8. Disparities by level of qualification have widened ......................................................... 85 Figure 1.9. The structure of employment has changed .................................................................... 86 Figure 1.10. The term of temporary contracts has fallen sharply ...................................................... 87 Figure 1.11. The number of young people not in employment or education is high ........................... 87 Figure 1.12. Wages have not tracked productivity .......................................................................... 88 Figure 1.13. Changes in unit labour costs....................................................................................... 89 Figure 1.14. Salaries and the minimum wage ................................................................................. 90 Figure 1.15. Targeted exemptions from employer contributions have increased................................ 92 Figure 1.16. The skills of the active population fall off rapidly as people age ................................... 93 Figure 1.17. Demographic ageing and automation are major issues ................................................. 94 Figure 1.18. Access to professional training remains unequal, 2016................................................. 97 Figure 1.19. Access to training for workers on temporary contracts ............................................... 100 Figure 1.20. Public spending on active labour market policies ....................................................... 101 Figure 1.21. The number of beneficiaries of some employment policies has slumped ..................... 103 Figure 1.22. Young people struggle to enter the workplace ........................................................... 104 Figure 1.23. The educational system perpetuates significant disparities.......................................... 105 Figure 1.24. Numbers of apprenticeship contracts and key trends .................................................. 107 OECD ECONOMIC SURVEYS: FRANCE 2019 © OECD 2019 6 TABLE OF CONTENTS │ Figure 1.25. The simulated effects of the 2018 and 2019 tax and benefit reforms............................ 111 Figure 1.26. Temporary contracts provide little access to more stable jobs ..................................... 113 Figure 1.27. Comparative changes in employment protection restrictiveness .................................. 116 Figure 1.28. Referrals to labour courts and the rate of temporary contracts have decreased ............. 119 Figure 1.29. Employer and union representation and collective bargaining coverage ...................... 123 Figure 1.30. Local labour markets are extremely varied ................................................................ 127 Figure 1.31. The impact of property market restrictions on the mobility of young people ................ 128 Figure 1.32. Replacement rates and eligibility criteria for unemployment insurance ....................... 131 Figure 1.33. Gender disparities are moderate ............................................................................... 132 Figure 1.34. Participation in formal child care .............................................................................. 133 Figure 2.1. Stock of public capital and public investment.............................................................. 151 Figure 2.2. Infrastructure governance indicators ........................................................................... 153 Figure 2.3. Distribution of investment spending across levels of government ................................. 154 Figure 2.4. Local government investment .................................................................................... 155 Figure 2.5. The government funding of research is broadly in line with the OECD average ............. 157 Figure 2.6. The capital stock from public-private partnerships is fairly limited ............................... 163 Figure 2.7. Territorial fragmentation is sizeable ........................................................................... 165 Figure 2.8. Municipal investment spending by category of municipalities ...................................... 166 Figure 2.9. Local government investment spending as a share of total spending ............................. 167 Figure 2.10. Investment in transport infrastructure ....................................................................... 171 Figure 2.11. Rail investment spending ......................................................................................... 173 Figure 2.12. Rail freight is not on the right track .......................................................................... 175 Figure 2.13. The share of renewables is small, but the CO2 emission content of electricity generation is low ................................................................................................................ 176 Figure 2.14. Energy-efficiency gains are driven by the residential sector........................................ 177 Figure 2.15. Electricity generation predominantly originates from nuclear power ........................... 179 Figure 2.16. Interconnection capacity with the European electricity market is low .......................... 181 Figure 2.17. There is room to improve the quality of broadband infrastructure ............................... 182 Figure 2.18. Penetration of digital technologies in public administration is improving .................... 184 Figure 2.19. Spending on R&D is broadly in line with the OECD average ..................................... 185 Figure 2.20. International net flows of scientific authors ............................................................... 187 Figure 2.21. Project funding of R&D is limited ............................................................................ 188 Figure 2.22. Business R&D intensity is higher once adjusted for industrial structure ...................... 189 Boxes Box 1. Key measures from the government’s 2017-22 reform agenda .............................................. 20 Box 2. Impact of some OECD recommended reforms on growth and inclusiveness .......................... 35 Box 3. Initial coin offering............................................................................................................ 62 Box 1.1. The OECD’s new Jobs Strategy....................................................................................... 78 Box 1.2. The 2018 reform of continuous training ........................................................................... 96 Box 1.3. The 2018 apprenticeship reform .................................................................................... 108 Box 1.4. The 2018 and 2019 tax and benefit reforms, and their simulated effect ............................. 110 Box 1.5. The 2016 and 2017 employment protection reforms ........................................................ 114 Box 1.6. Legal limits on worker compensation in case of unfair dismissal in other countries ........... 117 Box 1.7. Derogatory temporary contracts and TWA employment .................................................. 120 Box 1.8. The 2016 and 2017 collective bargaining reforms ........................................................... 125 Box 1.9. The implementation of Universal Credit in the UK ......................................................... 129 Box 1.10. Recommendations for improving labour market performance ........................................ 134 Box 2.1. Illustrating the challenges in defining and measuring public investment ........................... 150 OECD ECONOMIC SURVEYS: FRANCE 2019 © OECD 2019 TABLE OF CONTENTS 7 │ Box 2.2. The Grand plan d’investissement and the Fonds pour l’innovation et l’industrie ............... 156 Box 2.3. Decision-making process for large hospital investments .................................................. 161 Box 2.4. Distribution of responsibilities and transport planning ..................................................... 171 OECD ECONOMIC SURVEYS: FRANCE 2019 © OECD 2019 8 │ This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries. The economic situation and policies of France were reviewed by the Committee on 18 March 2019. The draft report was then revised in light of the discussions and given final approval as the agreed report of the whole Committee on 29 March 2019. The Secretariat’s draft report was prepared for the Committee by Antoine Goujard and Pierre Guérin under the supervision of Pierre Beynet. The Labour Market Chapter also benefitted from contributions by Stéphane Carcillo, Alexander Hijzen and Stefan Thewissen. Statistical research assistance was provided by Patrizio Sicari and editorial support was provided by Sylvie Ricordeau. The previous Survey of France was issued in September 2017. OECD ECONOMIC SURVEYS: FRANCE 2019 © OECD 2019