France’s labour market continues to outperform – for now

As the quarters pass, the performance of the French labour market continues to surprise positively. In the first quarter of 2022, the unemployment rate in France stood at 7.3% of the active population (as defined by the ILO), a slight decrease compared to the end of 2021. The unemployment rate is now 0.9 points below its pre-pandemic level and at its lowest level since 2008. But the most interesting aspect of the INSEE report is the employment rate, which is increasing in all age categories. The employment rate of 15- to 64-year-olds reached 68%, up 0.2 points over the quarter and at its highest level since the beginning of the statistical series (1975!). It is the young person category which has seen the highest increase, up 0.7 points over the quarter and up 4.8 points compared to the pre-pandemic level. This is quite an evolution, which goes hand-in-hand with the boom in "apprenticeships" (training in companies) among young people, the consequence of the "one youth, one solution" and "youth commitment contract" plans put in place by the government since the beginning of the health crisis under the leadership of the Minister of Labour, Elisabeth Borne. The employment rate among young people is now at its highest level since 1991 (34.6%), while among those aged 50 to 64, the employment rate has reached 65.5%, its highest level ever.

This rise in the employment rate is accompanied by a fall in the number of people who are constrained in their labour supply, whether it is unused (wanting a job) or underused (underemployed). Therefore, contrary to what was observed at certain times during the health crisis, the improvement in labour market statistics is not a "trompe l'oeil", a consequence of a fall in hours worked (partial activity) or an exit from the labour market due to the impossibility of looking for a job. There is indeed a real improvement in the overall labour market situation in France at present.

These data can be seen as good news for the economy, as a strong labour market means that nominal household disposable income does not deteriorate and thus supports consumption and consequently economic growth. That said, a strong labour market alone will not prevent a contraction in real household disposable income, given the high inflation environment. Indeed, we expect household consumption and GDP to contract in the second quarter of 2022. But the contraction would have been more pronounced if the labour market was in a bad position.

What can we expect from the labour market in the coming quarters? The sharp economic deceleration is likely to have a negative impact on the labour market in the coming months and we expect much less dynamism in job creation. Nevertheless, at this stage we do not foresee a sharp deterioration in the unemployment rate. After all, recruitment difficulties are still very important: according to the Banque de France survey at the end of April, 52% of companies indicate that they are having difficulty recruiting. Furthermore, we continue to forecast economic growth in France in 2022 of 2.7%. This figure is much less optimistic than the European Commission's forecast (3.1%) but is still compatible with job creation over the year. We therefore expect the unemployment rate to stabilise at around 7.3% (in the ILO sense) for the rest of the year. If the French economy continues to grow in 2023, a further decrease in the unemployment rate could be observed and unemployment could reach 7% by the end of 2023, a symbolic level that has not been reached since 1982.