Usefulness of the article: Despite structurally high unemployment, French companies report difficulties in recruiting on the labor market. This article measures these tensions on the labor market, identifies barriers to hiring, and highlights the solutions being considered by companies to address them.
Summary:
- Despite a structurally high unemployment rate of 8.1% at the end of 2019, companies report significant recruitment difficulties in the French labor market.
- According to companies, candidates’ skills gaps are their main obstacle to recruitment. Companies are stepping up their recruitment efforts, relaxing their requirements for candidates, or modifying job characteristics in order to overcome these difficulties.
- Numerous structural reforms would also help to improve the situation on the French labor market to a certain extent.
Recruitment difficulties in the labor market are regularly on the agenda of the Grenelle meetings. These quarterly meetings were established by the Minister of Labor, Muriel Pénicaud, to stimulate high-quality debate between economists and employment experts on the labor market situation and employment prospects. Despite a structurally high unemployment rate of 8.1% (according to the National Institute of Statistics and Economic Studies (INSEE), as defined by the ILO, in the last quarter of 2019—see graph), companies are experiencing significant and persistent recruitment difficulties in the French labor market.Various factors contribute to these recruitment difficulties, and several solutions are being considered to overcome them.
The scale and worsening of recruitment difficulties
Several data sources provide complementary indicators for measuring labor demand from companies. These indicators highlight the scale and worsening of such difficulties.
In this regard, the upward trend in the job vacancy rate, as measured in the Activity and Employment Conditions of the Workforce (Acemo, 2019) survey conducted by the Ministry of Labor’s Directorate for Research, Studies, and Statistics (Dares), is a prime example. The high level of this rate reveals the matching problems faced by companies in the labor market (see data).
This finding is confirmed by several surveys. According to the INSEE economic survey, 41% of companies report difficulties in recruiting (see study). Similarly, according to the Dares Job Vacancy and Recruitment Survey (Ofer, 2016), 17% of recruitments carried out between September and November 2015 proved difficult. Furthermore, the Labor Needs Survey (BMO, 2019) conducted by Pôle Emploi reveals that out of 2,693,220 recruitment projects, 50.1% are expected to be difficult. The professions of auto body repairers, surveyors, adjusters, and roofers are particularly affected by recruitment difficulties, with more than 84% of recruitment projects in these fields expected to be difficult. These recruitment difficulties also show significant sectoral and geographical disparities (see graph).
Furthermore, these recruitment difficulties appear to have worsened recently. Indeed, after remaining at a high level between 2004 and 2008, they fell significantly during the Great Recession of 2008-2009, followed by a period of stabilization, before increasing considerably between 2017 and 2019. This trend, which occurred during a period of economic growth and coincided with an ever-increasing rate of production capacity utilization (see study), highlights the structural nature of these recruitment difficulties.
The obstacles to recruitment for companies stem mainly from candidates’ skills gaps
Recruitment difficulties for companies can stem from several types of obstacles:
- The shortage of available labor;
- Candidates’ skills gaps;
- The lack of attractiveness of the positions to be filled in terms of salary, employment conditions, and working conditions.
The difficulties companies face in recruiting do not seem to stem from a shortage of available labor. Indeed, the various measures of labor supply from the unemployed and underemployed[1] constitute a continuum of situations, each of which refers to the available labor force at both the extensive and intensive margins (see graph). The high levels of these two indicators provided by the INSEE Employment Survey highlight the quantitative importance of this available labor force.
In the 2016 OFER survey, recruiters highlighted three main barriers to hiring: candidates’ skills gaps, the low number of candidates, and the characteristics of the position offered (insufficient pay, workload, etc.). These difficulties vary depending on the nature of the contract, the type of position, and the sector of activity: they are more significant for permanent contract recruitment, skilled positions, and in the information, communication, business services, industry, and transport sectors (see study). The skills gaps among candidates are confirmed by the Wage Dynamics Network survey conducted in 2014 by the Eurosystem. According to this survey, 73% of the companies surveyed reported that the lack of sufficiently skilled labor was an obstacle to hiring between 2010 and 2013.
However, this situation is not specific to France, as the sharp increase in tensions related to the lack of available labor can be observed throughout the euro area, particularly in Germany, which, on the other hand, has a much lower unemployment rate than France.
Solutions to recruitment difficulties
In order to overcome these recruitment difficulties, there are a number of solutions that companies can consider, including investing in training for employees or candidates who do not have all the required skills, or improving the attractiveness of the position in terms of salary and employment and working conditions.
In this regard, academic literature has highlighted the beneficial effects of higher wages (Faberman and Menzio, 2016; Kettemann, Mueller, and Zweimüller, 2018) and improved working conditions (Hall and Mueller, 2017) on corporate recruitment.
However, rising tensions in the French labor market have not led to a significant acceleration in wages. This wage moderation is evident at both the macroeconomic and microeconomic levels. At the aggregate level, although average wages per capita, which include bonuses and reflect the structure of employment, rose slightly between 2017 and 2019 (notably due to the payment of the exceptional « Macron » bonus), it nevertheless grew at a much slower pace than before the Great Recession of 2008-2009 (+0.7% year-on-year in thesecond quarter of 2019 – see study).
Several factors may help explain this moderate wage growth. On the one hand, during periods of economic recovery, less-skilled workers, who were the first to be laid off during the crisis, gradually return to the workforce, thereby weighing on average wages (Verdugo, 2013). On the other hand, provisions such as the minimum wage or collective agreements set a minimum threshold below which wages cannot be lowered. These provisions create nominal downward wage rigidity, particularly during slowdowns, leading to slower wage growth during recoveries as companies anticipate future difficulties in lowering wages (Marotzke et al., 2017 – see study).
Furthermore, this wage moderation is also attributable to weak labor productivity gains and the structure of labor market tensions. On the one hand, recent technological advances have made capital more productive and less costly than labor, favoring demand for the former over the latter and resulting in slower growth in labor compensation. In addition, increased labor market tensions seem to be largely linked to very high job turnover in certain sectors that are highly intensive in low-skilled labor, such as construction, personal services, and hotels and restaurants. The successive hiring and termination of contracts for these low-wage workers also weighs on wage growth.
At the microeconomic level, companies do not consider increasing starting salaries to be a solution to their recruitment difficulties. According to the 2016 Ofer survey, employers favor three other main types of action, namely: stepping up their recruitment efforts, relaxing their requirements for candidates, or modifying the characteristics of the position.
In addition to the solutions considered by companies to overcome their recruitment difficulties, there are a number of reforms that could encourage people to return to work and facilitate matching in the labor market, namely:
– strengthening unemployment insurance controls (Parent, 2014);
– facilitating professional and geographical mobility (Andrews, Sanchez, and Johansson, 2011);
– developing training (Crépon, Ferracci, and Fougère, 2012).
Conclusion
French companies are therefore facing structural recruitment difficulties. These difficulties stem mainly from candidates’ skills gaps. In order to overcome these obstacles, companies are considering stepping up their recruitment efforts, relaxing their requirements for candidates, and modifying job specifications. In addition, higher starting salaries and the development of training, the system for which has recently been reformed with this in mind, would improve matching in the labor market.
