Unemployment In France

What caused unemployment in France? This is the underlying question, reading through the case, it is apparent that many influential people, be it, high ranking officials in the French government or students like us at Thunderbird, have all tried to understand the root problem. Many measures were taken in France during those times of crisis, however it is clear to me that all of the laws they have adjusted during that period of 1981-1994, have been “Kneejerk” reactions, rather than a sustainable solutions for French unemployment.

Francois Mitterrand came to power in 1981, and at the time the French unemployment rate was rising fast, actually to be precise, the unemployment rates started rising in 1975. Till 1975 the French unemployment rates had remained quite low, and slowly that rate started increasing. Many people blamed the higher rates of unemployment on a decline in labor productivity growth. In other words the industrial revolution hit them, and unlike their neighboring countries the French weren’t ready for the computer age. And when Mitterrand, a socialist, was elected president in 1981, he had an agenda which would help lower the rates. He drastically increased the minimum wage, increased benefits, reduced the working hours to 39 and added an extra week vacation. I mentioned “Kneejerk” reactions in my introduction, and I believe that the measures that the President took in his first year in office were just that. Sure they helped in the short term; by 1985 inflation was down to 5.8% from 13.4% when he first took power. The current account deficit also fell drastically from 12 billion in 1982, to 35 MILLION in 1985. He also helped create a 100’000 jobs. However the unemployment rate kept rising. So the problem was still there, and the worst part was that the rate was still rising.

Following these results in 1986 the conservative party won control of the National Assembly, and they selected Jacques Chirac as leader of the coalition and Prime Minister, who had very similar goals, however the elections of 1988 saw Mitterrand defeat Chirac, and saw the return of socialist party leading the National Assembly.

In 1988, the new Mitterrand government undertook several more measures and tried to tackle the problem that was unemployment. A new Prime Minister, Rocard, also had an agenda to try and reduce the unemployment rates. He introduced a “guaranteed minimum income” (RMI), which improved social insurance benefits. The following year in 1989 Rocard took things further which triggered the most controversial “kneejerk” reaction in my opinion. He wanted increase the restriction on firing in France, however he wasn’t the man to lead this change, and in 1992 he received help from the minister of Labor, Martine Aubry who enacted the law in December 1992. The logic behind this reform was according to a quote by her the “ main for high unemployment in our country is that…we continue to consider the wage bill as the sole factor of flexibility, and, as a result we fire more people, more quickly, then elsewhere”. As I said this was a knee jerk reaction it did nothing to unemployment in France and in my opinion it proves that it was just a hassle for larger corporation working in France.

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