The slowdown in productivity weighs on growth in France

Posted Sep 29, 2022, 4:15 PM

In the debates to improve French growth, economists often point to the lower employment rate in France (67% in 2022) than in other countries, Germany in particular (75%). In a note published on Thursday, the Economic Analysis Council (CAE), an organization attached to Matignon, insists on a subject that is at least as important, but underestimated in the public debate: the relative decline in productivity in the country since about twenty years compared to that observed across the Rhine and in the United States.

“Over the period 2006 to 2019, France lost 7 points of GDP per capita compared to Germany and the drop in productivity explains around 5 points”, write the authors of the study, Maria Guadalupe, Xavier Jaravel, Thomas Philippon and David Sraer.

Macroeconomic challenge

The latter quantified the impact of this stall on economic activity and public finances. According to their calculations, the relative decline in productivity in France represented a shortfall of 140 billion euros in 2019. “It is a macroeconomic issue as important as the performance gap on the employment rate between the France and Germany”, assures Xavier Jaravel, professor at the London School of Economics. At the end of the day, around 65 billion euros in tax revenue less, or “the equivalent of debt service”.

Economic growth has mainly declined due to “weak productivity gains within the companies themselves”, underlines the note which specifies that “all sectors and all types of company contribute to the slowdown in productivity in France”.

“National priority”

For the CAE experts, the State must therefore act quickly to reverse the trend by using the lever of “human capital” and the orientation of skills. This must even be a “national priority”, with long-term objectives to improve the level at all stages of the school career. “France suffers from an educational dropout that affects even the best students,” they lament.

There is therefore an urgent need to raise students’ skills in two areas: math and socio-behavioral sciences – that is, the ability to work in a team. Disciplines in which France is poorly positioned compared to other countries, but which can have a significant impact on productivity.

According to their calculations, France could thus recover around 0.2 points of growth by agreeing to an effort equivalent to that led by Germany to move up in the PISA ranking in the 2000s.

The study also considers it necessary to better direct talent towards scientific careers or geared towards innovation recommending a focus on the women and young people from disadvantaged backgrounds. Which could also add an additional 0.2 points of growth per year. Each measure would bring in 75 billion euros of additional GDP after fifteen years, which would make up for the loss of productivity vis-à-vis Germany and the United States, according to CAE economists.

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