French competitiveness needs to be addressed

In order to achieve healthy economic growth and create jobs French competitiveness needs to improve, says the Organization for Economic Co-operation and Development (OECD).

The OECD report – Redresser la competitivité – lists several weaknesses in the economy, which if addressed would significantly improve French competitiveness in the world market.

One of France’s key priorities should be to make sure its education system and professional infrastructure is able to provide its citizens with the skills needed to succeed in a globalized economy.

France’s overall education level has improved steadily over the last couple of decades.

However, there is still a wide gap between the performance of good and weak students. According to the OECD “the French education system is one of the most unequal among OECD countries.”

The authors of the report also found that the socio-economic background of a student has one of the greatest impacts on his or her performance in the OECD.

The most effective teachers should be assigned to the weakest schools, the report recommends.

Current training schemes do not help French competitiveness enough

Professional training in France is very expensive; this should be reviewed because it is not suitable for the needs of the country. €32 billion ($43 billion) is spent on professional training in France, which is barely half of what the country spends on unemployment insurance. “The OECD recommends better targeting and the implementation of a system of vouchers to reach the most in need.”

Product market regulation is stricter in France than the average among its rival advanced economies, especially in the retail sector and network industries “where the margins imposed are among the highest in OECD countries.”

Restrictions on competition regarding services to business are also seen as burdensome.

Angel Gurría, OECD General Secretary, said:

“The government and social partners have made progress but must now be more ambitious in their aims, so that they correspond to a vision of society which is committed to all its citizens, including the most vulnerable.” ( Full speech in French).

Mr Gurría presented the report to the President of France, François Hollande, last week. It highlights some key areas which the OECD believes needs to be addressed to support competitiveness and productivity:

Reinforce research and innovation

The report states that France is weak in this area and that research and innovation are “imbalanced”. R&D (research and development) among small- and medium-sized companies is poor, while the links between public and private research are weak.

However, recent reforms are starting to bear fruit and must be followed through, reinforced and evaluated.

Improve public sector efficiency

The public sector is mired in regulations. How decentralized authorities are organized needs to be simplified. The overlapping (millefeuille) of agencies needs to be addressed.

France needs to develop a performance-based approach in the public sector.

Tax reform

France has high levels of labor taxation. Taxes on minimum wages are among the highest in the world. This makes it harder for employers to take on low-skilled workers.

Labor taxation does not help French competitiveness.

Several tax distortions and exemptions need to be addressed.

However, the authors praise the Crédit d’impôt pour la compétitivité et l’emploi (tax credit for competitiveness and employment) “which will lower labour costs and help increase exports and employment.”

The labor market

French unemployment is high, particularly among young adults and those aged 55+ years. Long-term unemployment is also a challenging problem.

Funds need to target under-qualified youths and older workers so that they may acquire the skills the economy needs today and tomorrow.

The authors added that France must reduce “the dualism between temporary and indefinite contracts by reforming job protection rules.”

The government’s “emplois d’avenir” (“jobs for the future”) program to help young people get into the job market received praise from the authors.

The housing market

Property prices have risen in France. According to the OECD, this undermines the country’s export performance because it attracts capital and labor resources at the cost of other more productive sectors of the economy.

In order to minimize distortions in the housing market France needs to reform this area of taxation.

Earlier this month, France’s S&P credit rating slipped from AA+ to AA.