Posted Jan 25, 2023, 5:56 PM
The labor market is holding up, despite sluggish activity. How is it possible ?
It is true that we are constantly surprised. Not only is the labor market resilient, but it is highly dynamic, in an extremely uncertain economic context with weak growth that could even be negative. Business surveys show no reversal or even slowdown in job creation.
Why this discrepancy never observed until then, which results in a drop in productivity? Several reasons can be put forward, including the strong development of learning . Some sectors also contribute to lowering productivity, at least temporarily, such as the transport equipment industry, construction or energy. Lastly, employment held up fairly well due to partial activity, the long-term management of staff with specific qualifications and the rise in energy prices. And then there is the rest…
That is to say ?
This is precisely what we do not know! First perhaps the vagueness surrounding the exact level of profitability of companies due to the very numerous public aids since the Covid crisis. Over the past three years, the number of bankruptcies was very low. Some companies hired more than usual as they were less budget constrained.
There is also certainly more declared work than before, partial unemployment having been able to reduce undeclared work. It is also possible that in certain sectors such as construction, reduction in the use of posted workers who were not considered in employment, played in favor of national hires which they are.
Last point often put forward: recruitment difficulties would lead some companies to preserve jobs, including once assignments have been completed, given the difficulty in finding them.
Should we expect a setback?
This trend cannot last. When productivity goes down, profitability goes down, which leads to more bankruptcies. Unless real wages fall, which is currently the case since they increase more slowly than inflation but this inevitably leads to a decline in the purchasing power of workers in the longer term…
The most likely is that once out of this exceptional situation, with a reduction in the budgetary wing of the State which has never supported the economy so much, the companies seek to raise the productivity of the employees in place. This will involve either a drop in hiring or a reduction in employment if growth is weak.
Does Emmanuel Macron’s objective of achieving full employment by 2027, that is to say an unemployment rate of around 5%, against 7.3% currently, remain credible? ?
Current trends could make us optimistic. But the macroeconomic reality is more severe given the difficult context in terms of weak growth, extremely significant productivity losses over the past three years, and monetary and budgetary policies that will be less generous.
Emmanuel Macron wants to bring the public deficit below 3% and the rise in rates is not over! Added to this is pension reform .
Due to age measures, the economy will have to absorb around 200,000 additional workers by 2027. For unemployment to fall, companies will have to create even more jobs. In this context, the challenge of an unemployment rate of 5% is desirable, but seems perilous to me.