Research for business: measures from the Gallois report

The measures put forward by the French government will not fundamentally change the competitiveness of French firms and pose some risks to growth.

In the present macroeconomic situation, EDHEC advocates improving the competitiveness of the French economy by introducing structural measures that help to avoid a new recessionary fiscal shock.

The Gallois report, the starting point for the measures recently announced by the French government, recommends drastic cuts in labour costs, which will in turn lead to a reduction in tax revenue. Given the country’s current debt problem, this drop in revenue will need to be found elsewhere. Compensating for the shortfall by an increase in charges levied by the government, no matter what sort of contribution is considered, is likely to have a negative impact on business and annual reports, increasing the recessionary trend from the rise in contributions announced in the autumn. Reductions in public spending will have a less marked recessionary impact and should be prioritized in this instance. For EDHEC, however, the economy’s competitiveness also hangs on a number of structural factors that the government should legislate on. This will have an impact on industry costs, helping to improve their their margins, their competitiveness and their growth.

It is the government’s role to improve the way the services and job market operate. First, the introduction of more competition in some highly regulated markets or service professions, or less regulation in the real estate sector would help to reduce the costs incurred by industrial firms that buy them, and at the same time would promote the creation of companies and jobs. Second, reforms to the job market are needed through the introduction of greater flexibility that would help to reduce the use of insecure job contracts mentioned in the Gallois report, a key competitiveness factor. In this sense, the proposal by EDHEC for a single employment contract that legally safeguards the firm and includes a degree of job protection that is moderate enough to help young people to join the job market would meet this need. Studies carried out have shown gains of over 5 points for jobs for the under 25s.

For the time being, the government is increasing VAT in some areas to compensate for the transitory reduction in the cost of labour. This measure is debateable in an economy weakened by public debt, when structural reforms could be made to improve the competitiveness of firms with constant tax rates.

You can download the position paper from the following links:

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