Trickle-down in drips and drops: The French economy after five years under Macron

To listen to Macron’s supporters, the economy is where the incumbent’s record shines brightest. The French economy’s attractiveness to business, its competitiveness, its performances on growth, employment and purchasing power – it’s all coming up roses, Macron told French voters in an open letter on March 3 declaring his bid to seek a second term in April.

How close to reality does that campaign pitch run? As is often the case in economics, it all depends on one’s perspective. Macron won office in 2017 with an overarching economic objective: to “liberate work and the spirit of enterprise”, as his platform pledged, in order to encourage growth, reduce unemployment and boost French consumers’ purchasing power.

To get there, Macron – a former investment banker who had served as economy minister under Socialist president François Hollande – promised deep economic reforms, to effect concrete change within France and to transform foreign investors’ perceptions of the country’s economy.

For businesses, Macron dropped the tax rate on firms from 33.3 percent to 25 percent, slashed the cost of labour by transforming a €20 billion a year tax credit into a permanent reduction on social security contributions for employers. He also had the French labour code modified to help firms by facilitating layoffs. For individuals, Macron did away with the wealth tax (the impôt sur la fortune, or ISF) and created a fixed one-time levy on capital gains to stimulate investment in companies and the real economy in trickle-down fashion.

Five years after Macron’s election, the raw numbers are relatively flattering. GDP growth, for one, reached 7 percent in 2021, according to an initial January estimate by the French statistics office, Insee. That exceptionally high figure represents the rebound the French economy enjoyed after a historic dip (- 8 percent) during the pandemic-inflicted recession of 2020, although France’s subsequent bounce was one of the most robust of any country in the eurozone. France’s unemployment rate, meanwhile, fell to 7.4 percent in the fourth quarter of 2021, a figure not seen since 2008.

France’s image abroad and its attractiveness to foreign investors also saw considerable gains. Macron’s La République en Marche party boasts that France became Europe’s most attractive country to investors over the course of the incumbent’s term, with France registering 985 foreign investment projects in 2020, versus 975 in the United Kingdom and 930 in Germany, according to EY Consulting’s attractiveness index.

Job security and quality on the wane

And yet those strong results only tell part of the story, particularly as to French attractiveness and the country’s ability to compete globally. France’s trade balance, especially, remains a major preoccupation with its foreign trade deficit surging another €7.3 billion in 2020 to €65.2 billion.

The country’s unemployment rate, moreover, dropped primarily on the basis of a rise in job insecurity for salaried workers. To spur recruitment, France sought to reassure companies that they could indeed let go of their hires in the face of adversity, in line with 2017 reforms. As a result, firms more frequently provided low-security jobs (short-term contracts, temporary work, etc.). In 2020, 3.3 million people in France held low-security jobs, some 12.4 percent of total employment, according to Insee. But most importantly, the labour code change led to establishing a scale of labour court indemnities in cases of dismissal without real and serious cause. Employers can now lay personnel off without grounds, that is without respecting the law, and know beforehand how much such dismissals will cost them.

Beyond a rise in job insecurity, Macron’s five-year term was also notable for its diminished job quality for workers. The investigative news site Mediapart reported that the average number of hours worked fell from 32 hours a week in the second quarter of 2017, when Macron was elected, to 30.9 hours a week during the third quarter of 2021. Part of that drop was due to the Covid-19 crisis, but it was also a sign of a qualitative change in the labour workers carried out. Many of the openings created have been low-value-added commercial service jobs. In January, the government boasted that 2021 saw the creation of nearly 1 million businesses in France – “quite simply a historic record”, Economy Minister Bruno Le Maire said. But 641,543 of those businesses were what are known as micro-enterprises (formerly auto-enterprises), small businesses created by and for a sole trader.

And finally, France tallied 1.9 million individuals who were no longer actively seeking employment in 2020, people thereby removed from the accounting of the country’s unemployment figures. As the economist Maxime Combes pointed out on Twitter, the 7.4 percent unemployment rate figure is also a function of the number of jobseekers withdrawn from the count, a figure that grew fast after a 2020 pandemic-related hiatus. Likewise, Macron’s unemployment insurance reform, fully applied as of autumn 2021, could reduce the number of jobseekers who register with Pôle Emploi, the unemployment insurance agency, due to a higher threshold of conditions required to qualify, specialists say.

Wealthiest grew wealthier, but business investment elusive

Fiscally speaking, while financial aid for businesses and other tax relief has not been evaluated recently, it has been shown that tax cuts on the wealthy have had no impact on business investment. “Observing the important economic variables – growth, investment, household financial investment flows, etc. – before and after the reforms, is not enough to pronounce on the real effect of these reforms. In particular, it will not be possible to estimate, by that means alone, whether the abolition of the wealth tax led to a redirection of the relevant taxpayers’ savings toward financing businesses,” France Stratégie, an institution under the onus of the prime minister’s office, conceded in an October 2021 report evaluating tax reform on capital. However, the same report noted that Macron’s reforms did lead to a 64 percent hike in dividend payments in 2018.

The wealthiest French individuals therefore did not choose to invest in the real economy, even as their purchasing power jumped over the past five years. As such, they come out the big winners of Macron’s term in office. The 1 percent of France’s wealthiest individuals, according to a November 2021 study by France’s Institute for Public Policies (IPP), saw an average gain of 2.8 percent in their total revenue after taxes and benefits. The total increase is even more striking for the 0.1 percent of the country’s wealthiest, who saw their purchasing power leap by some 4 percent.

For the rest of the French population, some of whom hit the streets across the country in revolt during a long and fiery series of Yellow Vest protests during Macron’s term, the trickle-down effect arrived in drips and drops. According to the IPP, the total average rise in the standard of living for the French as a whole over the past five years is around 1.6 percent. The least privileged, the 5 percent of France’s poorest households, were the biggest losers: their purchasing power sank 0.5 percent on average during the incumbent’s tenure.

This is the second installment of FRANCE 24’s series on Emmanuel Macron’s record as French president, after last week’s look at his foreign policy. This article has been translated from the original in French.