The brake on productivity in France, a dizzying deficit of 140,000 million euros

The brake on productivity in France, a dizzying deficit of 140,000 million euros

The French economy continues to be shaken from all sides. Eight months after the outbreak of the conflict in Ukraine, most indicators turn red one after another. Following the Banque de France a few days ago, INSEE could again lower its growth forecasts for the last quarters of 2022. In this particularly gloomy context, French productivity could still set the pace in the coming years.

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In a note titled “Cap human capital to reconnect with productivity growth,” the economic analysis council sounded the alarm on Thursday, September 29. “The slowdown in productivity is a major economic problem in our country. Compared to the US and Germany, productivity in France is falling faster.” said Xavier Jaravel, one of the co-authors of the rating and the award for the best young economist in 2021 during a press conference.

The worrying slowdown in productivity, a threat to the French economy

A loss of wealth of 140,000 million euros per year

The first striking lesson from this 80+ page documented work is that falling French productivity reduced gross domestic product (GDP) by around 5.8 points over the period 2003-2019. This represents approximately 140 billion euros over fifteen years. This drop in productivity in France compared to Germany or the United States also leads to staggering losses for public finances of around €65 billion with a mandatory tax rate of 46%.

To give an order of magnitude, economists point out that this sum represents the annual budget of the Ministry of National Education. The research center recalls that France has lost 7 points of GDP per capita compared to Germany in fifteen years. Much of this desertion (5 points) is explained by productivity losses.

Finally, it should be remembered that although researchers have focused their work on the last two decades, the slowdown in productivity in France is far from a recent phenomenon. From the end of the “glorious 30”, the French economy posted weaker productivity gains. “In France, labor productivity growth halved during the 1970s, falling from a rate of 5% a year to a rate of 2.6%,” explain the OFCE (French Observatory of Economic Conditions) economists Éric Heyer and Xavier Timbeau in a recent

book dedicated to the tricolor economy. The various economic crises linked to the oil shocks of the 1970s and the drastic tightening of monetary policies dealt a heavy blow to productivity in the world’s rich countries during this period.

All sectors affected

The other important finding is that most sectors are affected by this slowdown in productivity. As expected, the drop in productivity in industry can be explained in part by a transformation of the French production model. The accelerated deindustrialization of the French economy since the 1970s has led to massive job losses in industry. As a result, high-productivity jobs have been drastically reduced.

Productivity is generally higher in industry than in other sectors. In construction and commerce, the trends are very negative compared to Germany. Finally, even in information and communication technologies, the results are “alarming”, judge the economists of the analysis center.

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A worrying educational abandonment One of the main factors cited by economists to explain this slowdown is France’s defection in terms of skills, particularly in math. […] “Several recent analyzes agree on the observation of a clear deterioration in the middle level but remain ambiguous regarding the evolution in the upper part of the distribution. We confirm here the observation of a general level degradation in France and also show that this observation also applies to the best scores of the distribution in particular during the recent period”,

economists say. The body attached to the President of the Government also points to the degradation of skills in the professional field. “Educational desertion in mathematics and socio-behavioral skills weighs on productivity. Socio-behavioral skills include the ability to work in a team, to communicate, for example. France is in a bad position in mathematical and socio-behavioral skills. The decline in mathematics worries both the general average and the best students”,

summarizes Xavier Jaravel, professor at the London School of Economics (LSE). Faced with this overwhelming observation, the economic analysis council makes several recommendations. [au cours de la carrière] “Our first recommendation is to set a real ambition to increase educational performance. There are a series of reforms to be carried out in the programs, the training of teachers. It is also necessary to insist on the reinforcement of socio-behavioral skills in the school curriculum. Emphasis should be placed on further training »,

the economist continues.

The research tax credit in the sights of the Council for Economic Analysis The research tax credit coveted by big business is in the sights of the economic analysis council. Several economists from all sides have crushed this fiscal niche demanded by the large French groups. The incentive effect of the CIR is weak for the R&D spending of large groups, which benefit from 400 million euros in subsidies at 5%»

, underline the authors of the note. The researchers recommend lowering the ceiling of eligible spending to 20 million euros. [ de 7 milliards d’euros par an] “We can optimize the research tax credit while keeping the overall budget and redistribute it by reducing subsidies for the benefit of human capital”,

the economist concludes. With the opening of the parliamentary session on the 2023 budget just days away, this proposal risks reigniting debates on this particularly controversial fiscal niche.

The French Economy 2020, Editions La Découverte.