20160325-NATIXIS-France_Germany__Is_it_necessary_to_choose_between_different_types_of_inequality__14页_1mb

Summary of FLASH ECONOMICS: France/Germany – Is it necessary to choose between different types of inequality?

Core Content

This document compares the labor market structures and inequality patterns between France and Germany, focusing on the trade-off between inequalities in access to employment and type of employment contract versus income inequalities. It is authored by Patrick Artus and discusses the implications of labor market reforms in France and the outcomes of reforms in Germany.

Main Points of Debate

• France is considering labor market reforms aimed at reducing job protection to facilitate job creation.

• These reforms include:

  • Defining redundancies more precisely.
  • Standardising redundancy payments.
  • Allowing flexible working time with company-level agreements.
  • Introducing company referendums.

• The debate is framed as a choice between two forms of inequality:

  • Inequalities in access to jobs and type of employment contract.
  • Income inequalities.

Key Findings: France vs. Germany

(1) Inequalities in Access to Employment

• Germany has a lower structural unemployment rate (at least 3 percentage points lower than France).

• Youth unemployment in Germany is at least 10 percentage points lower than in France.

• Long-term unemployment is also lower in Germany.

• Unskilled unemployment is 2 percentage points lower in Germany.

• Unskilled youth unemployment is 10–30 percentage points lower in Germany.

• France exhibits greater inequalities in access to employment, especially among the unskilled and young workers.

(2) Inequalities in Employment Contracts

• In France, a significant portion of the labor force consists of temporary and fixed-term workers, who are more likely to be unemployed or to switch jobs frequently.

• Permanent employment contracts in France are highly protected, and those with such contracts rarely become unemployed.

• In contrast, Germany has a more balanced distribution of employment contracts, with a higher proportion of permanent contracts and lower reliance on temporary work.

• The segmentation of the labor force in France is more pronounced, with a high proportion of temporary contracts and low job security for many workers.

(3) Income Inequalities

• Income inequality (measured by the GINI coefficient) is slightly higher in Germany than in France.
• However, the discrepancy in wages by sector is much greater in Germany (157% in services vs. 120% in France).
• In Germany, income inequality is mainly due to low wages in the service sector, while in France, income inequality is lower overall.

Key Arguments

• Germany’s labor market reforms in the early 2000s (Hartz I–IV) increased flexibility, leading to a significant reduction in unemployment, particularly among the unskilled and youth.

• These reforms, however, increased income inequality slightly, but the overall cost in terms of employment access is considered low.

• France’s low labor market flexibility results in high structural unemployment and significant inequalities in employment contracts, but income inequality remains low.

• The trade-off between the two types of inequality is not necessarily a zero-sum game.

• The benefits of reduced unemployment in Germany outweigh the rise in income inequality.

• Therefore, the cost in terms of income inequality from reducing job protection is not excessive when considering the positive impact on employment access.

Conclusion

• The reforms in Germany have successfully reduced unemployment and improved labor market efficiency, even though they have led to some increase in income inequality.
• In France, lack of labor market flexibility results in higher unemployment and greater inequality in employment contracts, but income inequality remains relatively low.
• The trade-off is not a necessary choice; rather, it is a matter of policy prioritization.
• The overall cost of reducing structural unemployment (and associated inequalities in employment access) is low in terms of income inequality, suggesting that greater flexibility can be pursued without causing significant harm to income equality.

Summary Table

Author’s Viewpoint

• The author argues that the cost of reducing structural unemployment in terms of income inequality is not significant when comparing France and Germany.
• Therefore, labor market reforms that increase flexibility should be considered beneficial, even if they lead to some increase in income inequality.

References

• Data sources: Eurostat, Natixis, OECD, ACOSS, DARES.
• The document is strictly confidential and intended for qualified professionals or investors only.