Summary
· The COVID-19 health crisis has had repercussions on the entire labor market, particularly for young people, whose job prospects have deteriorated.
· The situation of young people in the French labor market is linked to their skills gaps, which the 2018 reform of the vocational training and apprenticeship system attempted to address;
· In response to this situation, international organizations have renewed and strengthened their institutional recommendations, and the French public authorities have undertaken new reforms to promote youth employment.
· The flagship measure of these reforms, namely a total exemption from social security contributions in the form of a bonus, is controversial at both the political and academic levels.
Usefulness of the article: The Covid-19 health crisis has had repercussions on the entire labor market, particularly for young people, whose prospects on the labor market have deteriorated. This article presents the situation of young people in the French labor market, the institutional recommendations and reforms undertaken by the French public authorities to promote youth employment, as well as the political and academic debates surrounding the flagship measure of these reforms.
1. Overview of young people in the labor market during the Covid-19 health crisis
The Covid-19 health crisis has had an impact on the entire labor market, particularly on youth employment. Young people, whose situation before the crisis was already less favorable than that of other demographic groups, have seen their labor market prospects deteriorate further in three ways: by disrupting their training, worsening their employment prospects, and hindering their integration and transition into the workforce. In this regard, according to a recent survey of 112 countries conducted by the International Labor Office (ILO), published on May 27, 2020, and confirmed by the OECD in its Employment Outlook 2020 published on July 7, 2020, almost all of the young people surveyed reported that their educational institutions had been partially or completely closed, and half of them reported that they were likely to fall behind in their studies (with 10% saying they would be unable to complete them). In addition, more than one in six young people surveyed had stopped working since the beginning of the crisis, and for those who had kept their jobs, their working hours had fallen by 23%. Furthermore, more than four in ten young people worked in sectors severely affected by the crisis, particularly in accommodation and food services, as well as in wholesale and retail trade, and generally held forms of employment that made them more vulnerable (low pay, less job security, informal employment).
While this diagnosis is common to many countries, there are significant national disparities in terms of youth employment. According to OECD data from July 16, 2020, the unemployment rate for young people aged 15 to 24 rose in France from 18.7% to 21.2% between February and May 2020, while it remained virtually stable in Germany (5.5% to 5.4%) and Spain (32% to 32.9%) and even improved in Italy (28% to 23.5%), as shown in Figure 1. Similarly, the high proportion of young people aged 15 to 29 who are unemployed and not in education, Employment, or Training or NEET) in the total population of young people aged 15 to 29 (in 2018 or according to the latest available OECD data) stands at 16.10% in France, compared with 9.19% in Germany, 19.06% in Spain, and 23.86% in Italy (Figure 2).
Figure 1:
Unemployment among young people aged 15 to 24
(% of the working-age population of the same age)
Source: OECD (2020).
Figure 2:
Young people aged 15 to 29 who are unemployed and not in education or training
(% of the total population of the same age)
Source: OECD (2018 or latest available data).
These figures should be viewed in relation to young people’s skills gaps. In this regard, according to the results of the OECD’s Programme for International Student Assessment (PISA) survey, France ranks 23rd, 25th, and 24th respectively in reading comprehension (score of 493), mathematics (score of 495), and science (score of 493), compared to 20th (498), 20th (500) and 16th (503) for Germany, 32nd (476), 31st (487) and 40th (468) for Italy, and 34th (481) and 30th (483) for Spain for the latter two skills (Figure 3). In addition, the number of apprentices in Germany (1,635,000) is higher than the combined total for France (689,000) and Italy (435,000) (Figure 4).
Figure 3: Results of the 2018 PISA survey in reading comprehension, mathematics, and science
Figure 4:
Number of apprentices (thousands – left) and unemployment rate among young people aged 15 to 24
(% of the working-age population of the same age – right)
Sources:
1. Figure 3: OECD (PISA 2018).
2. Figure 4:
– Apprenticeships: Destatis (Germany), Ministry of Labor (France and Italy).
– Unemployment: Eurostat.
* The number of apprentices includes professional training contracts.
** Unemployment and the number of apprentices correspond to 2019 for Germany and France and to 2018 and the 2016-2018 average for Italy, respectively.
In order to fill these skills gaps, France reformed its vocational training and apprenticeship system in 2018 through the « Freedom to Choose One’s Professional Future » law. This overhaul of the system has borne fruit: a 16% increase in the number of apprentices in 2019 compared to 2018; a proliferation of Apprentice Training Centers (CFA) in 2019; successful launch of the « Mon Compte Formation » app in November 2019 with one million downloads in less than three months, five million visitors, 160,000 people who have already created a training file, 26,000 who have already completed one, and a majority of workers and employees benefiting from it. However, the initial benefits of this law may be jeopardized by the impact of the Covid-19 health crisis on businesses, particularly smaller ones, which are likely to withdraw from apprenticeship programs starting in September 2020.
2. Institutional recommendations to promote youth employment
In light of this situation and with a view to minimizing the long-term stigma on the professional situation of young people, international organizations such as the ILO and the OECD (through its Youth Action Plan) have renewed and strengthened their institutional recommendations. On the one hand, emergency measures must be taken to limit job losses among young people, promote their hiring, and reduce their short-term underemployment. The adoption of large-scale, targeted measures aimed at the most vulnerable young people is recommended, such as job guarantee programs and labor cost reduction measures. On the other hand, structural reforms must be carried out and deepened in order to improve the long-term employment prospects of young people. These reforms involve skills development, in particular through the strengthening of apprenticeships and vocational training, as well as the removal of barriers to their integration and professional transition.
On July 1, 2020, the European Commission took up the proposals put forward by the Council of the European Union (EU) in the form of a package entitled « Supporting Youth Employment » and presented as a bridge to employment for the next generation. This package will provide at least €22 billion to Member States, notably through the future EU budget, and is structured around four sets of measures:
– Strengthening the Youth Guarantee (YG)[1].
– Making education and vocational training sustainable.
– A new impetus for apprenticeships.
– A number of additional measures to support youth employment: in the short term, employment and business creation support; in the medium term, capacity building, networks of young entrepreneurs, and inter-company training centers.
3. Reforms undertaken during the Covid-19 health crisis to promote youth employment
In response to the impact of the Covid-19 health crisis on youth employment, with an estimated 700,000 young people expected to enter the French labor market in September 2020, and in line with international and European recommendations, the French public authorities have announced the implementation of a youth employment support plan, called « one young person, one solution, » which is divided into two parts and has a projected budget of €6.5 billion for 2020-2021.
On the one hand, the government wants to reduce the cost of employing young people in order to facilitate their short-term hiring while improving the competitiveness of businesses. This measure consists of a total exemption from social security contributions in the form of a bonus. Aimed at all businesses, this scheme will be capped at twice the minimum wage, with beneficiaries aged 25 or under and a maximum duration of one year. The amount of this bonus can be up to €4,000 and corresponds to the amount of employee and employer social security contributions. It should be noted that for salaries below 1.6 times the minimum wage, employer social security contributions are reduced or even exempted at the minimum wage level.
Only hires between August 2020 and January 2021 on contracts of at least three months (fixed-term or permanent) will be eligible, with a payment of €1,000 per quarter. With an estimated cost of €1.2 billion, this measure should enable up to 450,000 additional young people to be hired by January 2021 and will be subject to evaluation.
In addition, the government wants to facilitate the long-term integration of young people into the labor market. It has therefore strengthened apprenticeships in order to consolidate the achievements of the 2018 reform. A subsidy of €5,000 (for hiring an apprentice or a young person on a minor professional training contract) and €8,000 (for an adult) between July 2020 and February 2021 was introduced on July 1, 2020. The estimated cost of this subsidy is €1 billion for apprenticeships and €744 million for professional training contracts. The government is therefore expecting 230,000 apprenticeship contracts and 100,000 professional training contracts to be signed.
In addition, the government also intends[3] to:
– Combat school dropout among young people furthest from employment, with:
o the creation of 300,000 integration pathways (subsidized contracts), including: 60,000 Employment Initiative Contracts (CIE), 60,000 Skills Employment Pathways (PEC), 35,000 integration contracts through economic activity, and 150,000 entries into GJ.
o 100,000 additional places in civic service (20,000 in 2020 and 80,000 in 2021).
– Encourage continuing education, with:
o support for the most disadvantaged students through the introduction of meals in university restaurants at €1 for students receiving grants (compared with €3.30 currently), at an estimated cost of €50 million.
o the creation of 10,000 additional places at university and 5,700 places in BTS (higher technical certificate) programs.
o the creation of 200,000 additional places in training courses in 2021, including 100,000 in future-oriented professions for young people who have failed in higher education.
The importance of investment by local authorities and social partners through social dialogue in the success of this plan was also emphasized.
After heated political debates, the public authorities opted for an exemption from social security contributions in the form of a bonus. The introduction of a hiring bonus rather than an exemption from social security contributions was favored by certain political actors, who considered it to be more effective. In this regard, the exemption from social security contributions is fully covered by the Social Security budget and therefore leads to a reduction in its funding, while a hiring bonus is covered by the State budget. Furthermore, the impact on the financial balance of Social Security is all the greater as the rights for which these employees would not contribute (unemployment, retirement, etc.) could be maintained. The introduction and withdrawal of such an exemption must be decided by law (vote in Parliament), while the introduction and withdrawal of a hiring bonus can be decided unilaterally by the executive branch. Other stakeholders have also argued in favor of extending the Active Solidarity Income (RSA) to those under 25.
In addition, reductions in social security contributions have the advantage of being clearly interpreted by employers as a hiring incentive (rather than a cash flow, as the hiring bonus could be considered). Furthermore, in response to more general criticism of the measures for young people as a whole, with qualified young people largely excluded from the proposed schemes, the public authorities have increased the ceiling for this aid to 2 times the minimum wage. On Sunday, July 19, 2020, the Senate also voted in favor of similar aid for all employees, not just young people, before finally joining the National Assembly in supporting the government’s initial proposal.
4. Academic evaluations of the effectiveness of a cost reduction measure
Academic literature has shown that cost reductions are less effective in terms of cost-benefit than other measures. It also suggests that the effectiveness of such measures depends on their targeting and timing. In this regard, a recent study conducted by Stéphane Carcillo, Pierre Cahuc, and Thomas Le Barbanchon (2019) assessed the impact of a measure similar to the exemption from payroll taxes on the hiring of young people currently being considered by the public authorities, namely the « zero charges » scheme. Introduced in 2009, the « zero charges » scheme consisted of a one-year exemption from social security contributions for companies with fewer than 10 employees for any new hires at a salary level below 1.6 times the minimum wage. This study highlights the positive impact of this scheme on employment. It also reveals that this beneficial effect is linked to the fact that the scheme is temporary and targeted at low-wage earners.
Furthermore, the annual cost per job created by social security contribution relief is very high, around €20,000 at the minimum wage level. In addition, this relief generally applies to all employees in employment, without targeting those at risk of losing their jobs, and therefore risks being associated with significant windfall effects. Conversely, other measures such as partial activity allow for targeting jobs that are at risk, and hiring bonuses allow for targeting those who would not be hired if labor costs were not reduced. These measures, which focus on flows, are therefore preferable to reductions in charges on stocks during a recession in order to reduce labor costs and thus support employment at a lower cost. In addition, empirical studies have shown that jobs saved by partial activity or those created by hiring bonuses cost only around 20% to 40% of the cost of a job saved by reductions in social security contributions (Cahuc, Kramarz, and Nevoux, 2018).
The effectiveness of these labor cost reduction measures also depends crucially on how they are targeted. These measures should be targeted solely at low wages. This is because they are then less likely to lead to wage increases than a reduction in contributions on higher wages. They reduce the cost of low-skilled labor, while (net) wages are little affected due to the weak bargaining power of the employees concerned. In addition, by changing the structural conditions of cost and price formation, they make companies that use more low-skilled workers more competitive. This has been demonstrated by the experience of the CICE (Carbonnier, Malgouyres, Py, and Urvoy, 2019), as well as by numerous studies which establish that employers are more sensitive to labor costs when wage levels are low (below 1.6 times the minimum wage – L’Horty, Martin, and Mayer, 2019). Furthermore, the CICE did not improve the competitiveness of export sectors, as it led to an increase in wages. Furthermore, these measures should not be targeted at specific demographic groups, in order to limit substitution effects with people from ineligible groups. In this case, aid for people under 30 is likely to discourage the hiring of other people.
The duration of the aid also influences its impact: to encourage companies to hire immediately, the eligibility window should be a maximum of one year. Beyond this horizon, the cost per job created increases significantly for two reasons: (i) a growing proportion of employees whose jobs are not at risk of being lost benefit from the aid, which therefore has no effect on their employability; (ii) this aid puts upward pressure on wages.
[1] The GJ, created in 2013, enables young people under the age of 25 to receive a quality job or training offer within four months of losing their job or finishing school.
[2] The reduction in employer contributions for these salaries is equal to the gross monthly salary multiplied by a progressive reduced rate. This rate is calculated as follows: (0.3205/0.6)*((1.6*gross minimum wage/gross salary)-1). For more details: https://www.urssaf.fr/portail/home/employeur/beneficier-dune-exoneration/exonerations-generales/la-reduction-generale.html
[3] A number of these provisions follow the recommendations made by the CESE on July 8, 2020, in its annual report on the state of France in 2020.
[4] There are currently 140,000 such jobs. This provision follows the recommendations made by the CESE on July 3, 2020, in its Essential Priorities for France’s Recovery.
