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French companies dwarfism (3)

Friday 6 April 2012, by Romain Sautard

Though birth of new companies or growth of high growth firms lag behind UK and Germany, the increase in overall private employment is parallel. The reason of that apparent inconsistancy is found in the creation of low skill jobs by government French programs, such as home service jobs. But this does not increase exports and the cost to the public budget of those jobs is tremendously high.

The French companies « dwarfism » (3)

Recent studies performed by IRDEME show that, compare to its northern neighbors, France lacks fast growing firms but also new firms creation, both key to employment.

However, how comes that, with such deficiencies, total private employment trends in France and other European countries do not show any major differences?

The answer is probably to be found in French programs to subsidize unskilled jobs.

French employment evolution

Statistics on private employment (i.e. excluding public sector) in France and other European countries, do not show that France was less dynamic over the past 10 years. There is a gap of several million private jobs, but this gap has been there for a long time as the French Governments policies did not help to develop private jobs:

Does it mean that France is catching up in terms of MSCs (medium size companies; ETI, enterprises de Taille Intermédiaire in French) or SME’s (PME, Petites et Moyennes Entreprises in French)? The last studies by IRDEME conclude the opposite. But, if France is not able to create MSCs and SMEs, why is employment rising?

The unskilled jobs

An explanation could be found in the promotion of unskilled jobs creation and of 0-employee companies which were the main targets of French Governments over the last 20 years with policies aiming to reduce unemployed people by self-employment companies.

Table 1:

Number of persons employed in 0 salaried employee companies, by year

2002 2003 2004 2005 2006 2007

Germany n.a. n.a. 1 730 954 1 605 913 1 614 528 1 602 226

France n.a. n.a. 1 282 139 1 350 396 1 382 039 1 626 008

UK 535 540 515 730 501 830 478 300 458 070 436 420

Source : Eurostat

These statistics are confirmed by figures on a particular kind of unskilled jobs, i.e. home care services jobs:

Graph 2:

Share of jobs created in the home care services sector compared to the total jobs created over the period 2005-2010

Source : Eurostat

Conclusion

Employment in France is not worsening, whereas indicators on firms’ creation and firms’ growth are leading to the opposite expectation. An analysis on the type of jobs created shows that employment growth is mainly due to subsidized unskilled jobs, allowing policy makers to move away from the real problem: the lack of large companies in France.

The heavy public cost of subsidized unskilled jobs.

These unskilled jobs have been subsidized and their cost is very high, thereby weighting heavily on the public budget.

A typical example is the French copy of micro-credit launched successfully in Bangladesh without government help. In France, it is ADIE, an association heavily subsidized by Caisse des Dépôts et Consignations, a French arm of the State. CDC was 5 years ago providing ADIE with nearly15 millions € in subsidies absorbed by operating expenses, to have banks provide 15 millions in loans to small companies. The performances have improved and in 2011, Inspection des Finances recorded that ADIE had to have an interest of 32% on its loans to cover its operating expenses…

According to studies made in the early 2000, other programs such as ACCRE or EDEN, that provide small entrepreneurs with loans of a few thousand € were similarly costing 1,5 time to 2 times the amounts that were loaned (because of the cost of the civil servants that are needed to manage, study and deliver these loans).

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