France’s jobs market faces ‘tipping point’ as growth falters

Audrey Louail has finally managed to hire the technology workers she needs. That is only possible because her rivals are cutting headcount.

“I had a lot of problems recruiting last year, but now there are enough people on the market,” said the chief executive of IT services group Ecritel.

A poll of the Croissance Plus network of high-growth companies, which Louail leads, shows a third of its 11,000 members planned to cut staffing this year amid a weak economic outlook and impending fiscal squeeze.

“This is the first time it’s been this bad since Covid,” she said of the poll.

Official data and business surveys paint a worsening picture of the labour market in the Eurozone’s second-largest economy — undermining President Emmanuel Macron’s years-long efforts to push France to full employment, often defined as a jobless rate of about 5 per cent.

The employment rate contracted for the first time in a decade late last year, according to statistics agency Insee. The figure for those aged 16-25 has fallen more sharply, though youth joblessness remains much lower than before Macron took office.

“We are at a tipping point,” said Olivier Redoulè, a director at Rexecode research institute.

Although job losses had not yet surged, he added, “we’re starting to see the first signs of the labour market going the wrong way — and if that happens, it can take a long time to repair”.

Households’ fear of unemployment is climbing.

PMI surveys point to widespread headcount cuts, while France’s wage growth has been the weakest among major economies over the past year, according to job search site Indeed.

“The labour market weakening is very clear,” said Charlotte de Montpellier, senior economist at ING, who believes France’s jobs market will underperform Germany because of greater political uncertainty, and spending curbs on public sector hiring.

Corporate bankruptcies are mounting and lay-offs are piling up, including at big companies such as retailer Auchan and tyremaker Michelin where they are closing two factories.

The flow of bad news prompted a relaunch on March 1 of the state-subsidised furlough scheme that helped companies hang on to workers through Covid-era lockdowns. 

The only indicator that remains stable is unemployment, which on Insee’s measure stood at 7.3 per cent at the end of 2024, almost the lowest level since the early 80s.

The hiring slump marks a break in a jobs boom that began well before the pandemic, as earlier reforms cutting labour costs, loosening job protections, and lowering corporate tax bore fruit.

Since 2020, the workforce has grown by more than a million, fuelled by the rising pension age and subsidies for apprenticeships and vocational training.

Those gains have not reversed.

“Ten or 15 years ago, unemployment would rise [into double digits] if growth fell below 1.5 per cent,” Stéphane Carcillo, a senior economist at the OECD, said. “Now, even with GDP growth below 1 per cent, unemployment is below 8 per cent. That is pretty new.”

Banque de France governor François Villeroy de Galhau on Friday said unemployment was holding up “relatively well” and was set to rise to 7.5 per cent or 8 per cent by year end, lower than previous analysts’ forecasts.

But the bigger question is whether France can sustain the recent gains in employment, which economists see as crucial to broaden the tax base and repair the country’s severely degraded public finances.

“More people in employment means more resources,” said Carcillo.

A recent note by the government’s Conseil d’Analyse Economique shows where France falls short. Adults aged from 16 to 74 work 100 hours less a year on average than in the UK or Germany. This is not because of shorter working weeks, but because so many young and older people do not work at all.

France is closing the long-standing gap on keeping older people in jobs. Those in their 50s are now more likely to work than in the UK or US and past pension reforms are gradually feeding through to the over-60s.

Safran, an aeronautics and defence group, has seen growing popularity of “progressive retirement” among older workers that allows them to work four days a week, while keeping 90 per cent of their salary. The group keeps paying their full retirement contributions to the state, so the worker has no penalty when they stop working.

But young people still take far longer than in the UK or Germany to find their first job after leaving education, and far too many of them are not in education, work or training of any kind.

“The labour market for young people is weaker now than a few months ago,” said Gérald Jasmin, who runs the French unit of Adecco. About 40 per cent of those on the books of the temporary work agency are under 25 years old.

Joseph Tayefeh, secretary of the Plastalliance plastic makers’ association, said cuts to apprenticeship subsidies in France’s new budget “are not helping”, as his sector often used them to train young people.

The group has seen the most overall weakness in the construction and cosmetics sectors, and Tayafeh said he is getting a lot of inquiries about the government’s new furlough scheme.

“The climate is quite morose in plastic valley,” he said, referring to the area in the south-east where the industry is concentrated.

The CAE has called for a broader reassessment of state support for the labour market, arguing France spends significantly more than its neighbours on labour market policies, with only modest results.

“We spend a lot on things targeted towards unemployment . . . that are relatively inefficient,” said Camille Landais, the CAE’s chair. “We need to think more carefully about how we get people who are not participating in the labour market to participate.”

While some reforms, including a big overhaul of support for the unemployed, are playing out, de Galhau, the central bank governor, called recently for a rethink of tax reliefs that cost the public finances some 2.7 per cent of GDP — supporting employment of workers who might have been hired anyway.

The situation remains precarious for France’s most vulnerable workers.

In the north of the country, carmaker Renault is not renewing half of the 600 temporary workers it had on staff alongside the 1,850 employees at the Sandouville factory that makes passenger vans.

“We are getting hit by lower demand . . . like all carmakers,” said Fabien Gloaguen, a union leader at the factory. “Renault is trimming temp workers since it’s more flexible and can be reversed quickly if things improve.”

Data visualisation by Oliver Roeder in London