20150521-NATIXIS-The_sectors_set_to_benefit_the_most_from_France_s_Responsibility_and_Solidarity_Pact_19页_579kb

Summary of FLASH ECONOMICS: The Sectors Set to Benefit the Most from France's Responsibility and Solidarity Pact

Core Content

The French Responsibility and Solidarity Pact (RSP) is a policy introduced in 2012 aimed at reducing labor costs to help companies rebuild their margins and combat rising unemployment. The RSP is expected to redistribute EUR 41 billion (2% of GDP) to French companies by 2017. The study analyzes the impact of this pact on 58 sectors, representing 75% of private-sector employees and 11.3 million jobs.

Main Points

• Net Job Creation: While 14 sectors have signed agreements, they have committed to creating 500,000 gross jobs, but net job creation is estimated at around 90,000. The RSP is expected to result in a net job creation of no more than 180,000 in the period 2015-2017, which would correspond to a half percentage point drop in unemployment.

• Exemptions and Revenue Impact: The total amount of exemptions under the RSP is estimated at EUR 32.5 billion for the period 2015-2017, slightly less than the EUR 41.5 billion announced by the government. The exemptions are distributed unevenly across sectors, with some sectors benefiting more than others based on their financial structure and wage distribution.

• Sectoral Differences: The benefit from the RSP varies significantly by sector. For instance:

  • Cleaning service companies and associated services could see up to 2.1% of annual revenues in 2015.
  • Banks will see a rise in profit margins of nearly 1% of annual revenues, but only by 2017.
  • Metal industry is the main beneficiary with EUR 4 billion in total exemptions.
  • Agriculture and construction benefit mainly from reductions in employer contributions, while banks and insurers benefit more from corporate tax cuts.

• Time Distortion: The RSP's impact on sectors is not uniform over time. Exemptions for low wages start in 2015, for medium wages in 2016, and for corporate tax in 2017. Sectors with a higher proportion of low wages will experience earlier gains, while those with higher corporate taxes will see benefits later.

• Profit Margins and Exemptions: There is a negative correlation between profit margin and the relative benefit from the RSP. Sectors with lower profit margins benefit more from the RSP, as they are more sensitive to reductions in labor costs.

• Commitments vs. Exemptions: The sectors that have signed agreements have made commitments that are not always aligned with the actual net job creation. The net number of jobs created is expected to be around 90,000, which is less than the gross figures. The payroll represented by these net jobs is around EUR 6 billion, or 15% of the total exemptions.

Key Information

• Total Exemptions (2015-2017): EUR 32.5 billion
• Total Exemptions (Government Estimate): EUR 41.5 billion
• Net Job Creation: Less than 90,000 over 2015-2017
• Main Beneficiaries: Cleaning service companies, agriculture, construction, and the metal industry
• Corporate Tax Reduction: Expected to reach 32% in 2017 and 28% in 2020
• Exemptions by Measure:
  • Employer contributions (1-1.6x minimum wage): 59% of total exemptions
  • Gradual elimination of C3S: 25% of total exemptions
  • Corporate tax reduction: 16% of total exemptions

Structure and Methodology

• The study uses INSEE data to estimate the number of companies, workforce, and revenues for each sector.
• Turnover rate of 10% is applied to calculate net job creation from gross commitments.
• The average gross wage is used as a basis for estimating the impact of job creation on payroll.
• The gamma distribution is used to model wage distribution due to lack of detailed sectoral wage data.

Conclusion

• The RSP is expected to provide a positive and massive shock to corporate margins, with an estimated increase of 2 percentage points of value added by 2017.
• It is unlikely to trigger an immediate and significant recovery in employment, but it may create a virtuous circle in the long term by improving margins and encouraging investment and vocational training.
• The benefits are not uniform across sectors, and the impact will vary over time depending on the sector's wage structure and tax exposure.