A very violent shock

9The lockdown has exerted an unprecedented and violent shock on labour markets across the OECD. According to Google data, between February and April 2020, trips to the workplace collapsed by more than 40%, public transport trips by almost 50%, and trips to cafés, museums and restaurants by almost 50%. Even trips to food shops and pharmacies fell by 20% (OECD, 2020). [2]

10France is one of the countries where “non-pharmaceutical” measures to fight the epidemic, i.e. restrictions on activities and travel, have been the strongest. [3] Along with Spain and Italy, it is thus the country that has imposed the longest generalised lockdown of its population with very few authorised exceptions and the outright closure of many establishments. [4] In France and Spain, travel has been reduced by 50% or more, compared to only 30% in Germany.

11The consequence has been a collapse in the flow of job vacancies by more than 25% between the second quarter of 2020 and the same quarter of the previous year, with a fall of more than 50% in the entertainment, hotel and catering, tourism and leisure sectors, and almost 40% in transport and logistics. [5] The number of jobseekers registered with Pôle emploi (French Public Employment Service) has risen sharply, mainly due to the end of fixed-term contracts and temporary work assignments, as well as fewer people leaving for employment: 390,000 additional people were registered in category A, B or C between February and August 2020 (+ 7%). [6] Indeed, most of the people on permanent contracts have been protected by a programme of unprecedented scale, as in many other European countries, to maintain employment through–short-time working.

12In total, hours worked in France fell by 19% between the second quarter of 2020 and the fourth quarter of 2019 (adjusting for seasonal effects). The European average was 13.5% over the same period. Employment fell by 573,000 over one year in the second quarter of 2020 (– 2.3%), [7] and the employment rate fell to 63% compared with 63.4% two quarters earlier. [8]

The central role of partial unemployment

13The expansion of short-time working in France has been unprecedented. In April 2020, up to nearly 45% of employees were actually placed for all or part of their hours in “partial activity”, [9] mainly those working in small companies. [10] This is about one and a half times more than in Germany during the same period, despite the country being particularly used to this system. [11] This proportion fell below 10% during the summer thanks to the end of the lockdown, which nevertheless remains a much higher proportion than during the 2009-2010 crisis.

14This strategy has, at least temporarily, stabilised the unemployment rate.

15However, despite the considerable effort of the State, the prospects for total job destruction are between 800,000 and 900,000 –mainly due to the expected closures of enterprises– [12] which naturally raises fears of a major influx into unemployment insurance. The unemployment rate is forecast at 9.5% at the end of 2020 (INSEE) [13] a loss of 26 billion for 2020 is currently anticipated (compared to 2 billion in 2019) for the unemployment insurance and the debt would reach 63 billion. [14] Indeed, in addition to the growing expenditure on compensation for the unemployed –an essential role in stabilising demand in this period of exceptional crisis– the unemployment insurance scheme also covers one third of short-time working expenditure, estimated at over €35 millions by the end of 2020. In 2021, the deficit of the insurance system is estimated at €7 billion, of which €2 billion is for partial activity. [15] In these exceptional circumstances, the employment insurance system has to adapt to best ensure its stabilising role while promoting the conditions for recovery. To this end, more than ever before in its history, the scheme needs to be properly coordinated with the other personal support schemes.

Historical heritage

16In 1958, the desire to introduce unemployment insurance for all private sector professions was largely motivated by the evolution of the French economy, in particular the anticipation of the arrival of the baby boomers on the labour market, the major structural changes caused by growing industrialisation, entry into the common market and trade liberalization.

17After considering several debated scenarios, [16] the government and the social partners opted for parity-based governance, in which representative employers and trade unions are responsible for determining the parameters of unemployment insurance and its management. The agreement of 31 December 1958, concluded between the employers’ and employees’ trade union organisations in the private sector, created the ASSEDIC [17] funds, which paid unemployment insurance benefits, and UNEDIC, which coordinated the ASSEDICs. The ASSEDIC funds were responsible for affiliating companies, receiving, informing and registering jobseekers, collecting social insurance contributions and paying unemployment benefits.

18The main objective of this scheme was to provide involuntarily unemployed people with a replacement income and to provide an incentive to return to work while maintaining financial equilibrium. Unemployment insurance was, and still is, governed by agreements concluded between the social partners, which can be applied after approval by the Minister of Labour. It is also governed by Articles L.5422 of the Labour Code, which lay down the main principles of compensation and contributions. The law also stipulates that the agreements must ensure the long-term balance of the scheme and be approved by the Minister dealing with Employment issues.

19Since its creation, UNEDIC has been involved in the negotiation of unemployment insurance agreements by carrying out studies and evaluating their costs. UNEDIC also implements the agreements. When it was set up, it was decided that the missions of the unemployment insurance scheme were limited to the strict payment of benefits; employment policy, vocational training and the reclassification of the unemployed were attributions of the Ministry of Labour.

20The creation of unemployment insurance, entrusted to the social partners, has three important characteristics which still have an influence today:

• The separation between support towards employment and unemployment compensation;
• The separation between assistance and insurance schemes;
• Coverage of private sector employees exclusively.

21These characteristics, largely related to the political context at the time, were probably justified in a context of low unemployment, the near absence of minimum income and the expansion of private sector employment. But the rise in unemployment, the introduction of a minimum income at the end of the 1980s, its activation in the 2000s and changes in employment in the public and private sectors have profoundly changed the functioning of the labour market since the late 1950s. Progress has certainly been made with the creation of the Public Employment Service in 2005, followed by the merger of the ANPE and ASSEDIC into Pôle emploi in 2008, but we are still in the middle of the ford regarding the articulation of the rules of support and compensation (see below). Unemployment insurance must evolve to adapt to this new environment.

International comparisons

22Compared with the vast majority of European countries and the United States, the social partners in France have a very strong influence on unemployment insurance. [18] Indeed, in all countries except France, unemployment insurance rules are defined by the legislature or the executive.

23In the United States and the United Kingdom, there is no formal consultation of the social partners, who have very little influence on the determination of unemployment insurance rules. Unemployment insurance is managed by the state.

24In countries where tripartite commissions exist, the influence of the social partners depends on formal rules but also on national practices which imply that they can have a strong influence despite the absence of binding rules, and vice versa. In Austria, Belgium, Estonia, Germany, Latvia, Lithuania, Luxembourg, and Slovenia the social partners are systematically involved in all decisions on the design of unemployment insurance and assistance. In Denmark, Hungary, the Netherlands, Portugal, and Sweden, governments have reformed unemployment insurance after periods of crisis, despite opposition from the social partners, who have consequently lost much of their influence on the design of the rules. In Bulgaria, Cyprus, the Czech Republic, Greece, Poland, Romania, Slovakia, and Spain, the influence of the social partners on unemployment insurance rules is weak or non-significant.

25The involvement of the social partners is not limited to the design of unemployment insurance rules, it is also about management. Participation in the management of unemployment insurance is important in countries that have adopted the Ghent model, where trade union membership is a condition for access to unemployment insurance. This system, created at the beginning of the 20th century in the city of Ghent, was subsequently adopted in Denmark, Finland, Iceland and Sweden. Although the rules of unemployment insurance are defined by law in these countries, the social partners participate in the management of unemployment insurance and/or the public employment service within the framework of a tripartite organisation. This is also the case in Germany, where the unemployment insurance managing authority with competence for the compensation and support of jobseekers is managed by a tripartite commission.

26All in all, international comparisons reveal the particularity of France, which is the only country whose unemployment insurance rules are in principle set by the social partners. Everywhere else, unemployment insurance rules are determined by the executive or the legislature, in many cases after consultation with the social partners. In this respect, the Avenir Professionnel Act of 5 September 2018 has created an ambiguous situation, since it gives the executive the power to issue ultimatums, which does not make it possible to establish the conditions for a real consultation or even negotiation.

Long-term management and counter-cyclicality of expenditure

28Unemployment insurance is a key component of countercyclical labour market policies. It played an important role in most OECD countries during the 2008-2009 crisis. Without even changing the rules, the volume of benefits increases considerably in times of crisis with higher inflows into unemployment. Some countries, such as Canada and the United States, have institutionalized rules that significantly increase compensation during recessions and decrease it during recoveries (Figure 1). Available evaluations [21] indicate that these rules are effective, as they provide better compensation when access to employment is more difficult. In addition, they increase the counter-cyclicality of compensation expenditure, thereby helping to stabilize activity. [22]

1

Net remplacement rate in employment after 10 months of unemployment

Net remplacement rate in employment after 10 months of unemployment

Reading: For a single person without children paid at the minimum wage (excluding housing benefit), the income replacement rate for the 10^th month of unemployment is 18% in the United States in 2019, compared with 64% in France.

29The available data show that in France the generosity of unemployment insurance is on average significantly higher than in the United States, but also slightly pro-cyclical. While maintaining a high replacement rate, introducing a dose of counter-cyclicality requires good coordination with macroeconomic policies and long-term steering. This is difficult to implement in the current system because the obligation to renegotiate the agreement every three years increases the pressure to balance the accounts at the bottom (or shortly after the bottom) of the cycle, and creates an incentive to lower contributions at the top of the cycle (instead of generating surpluses to steer the bottom of the cycle, as was the case in 2006-2007 and even more so in 2001-2002). This situation has not led to a consensus on the long-term steering of unemployment insurance expenditure, a topic of strong tension between UNEDIC and the State. [23]

30It should be noted that the need to establish long-term management that is consistent with the economic imperatives of responding to cyclical variations in activity has been strongly reinforced by the Covid-19 crisis. During this period, both eligibility conditions and maximum duration of compensation were modified to support the income of people employed on short-term contracts. These two parameters could be adjusted systematically depending on the economic situation, following the example of the rules in force in Canada and the United States.

• Recommendation 1. Establish a long-term steering of unemployment insurance expenditure that provides for an adjustment of unemployment compensation (eligibility conditions and maximum duration of compensation) following indicators of economic activity in order to strengthen the counter-cyclicality of expenditure and ensure the financial sustainability of the scheme.

Reducing income inequality

31Unemployment insurance interacts with various tax and transfer systems which together contribute to reducing income inequality and insuring individuals against risks in the labour market. Coordination of these schemes is particularly important at the lower end of the income distribution. In addition, unemployment insurance operates a significant redistribution between high and low incomes which is not coordinated with the overall socio-fiscal system.

32First of all, the rules of unemployment insurance affect the receipt of a means-tested set of social benefits, resulting in reciprocal financial externalities between unemployment insurance and the assistance benefits budget. Figure 2, based on a theoretical test case, shows that for jobseekers at the end of their entitlement, previously paid at the SMIC, the minimum social benefits and the increase in housing allowances can help to mitigate the loss of income when they switch to the Allocation spécifique de solidarité (ASS, unemployment assistance). Accumulation intensifies at the end of insurance benefits, i.e. when the switchover to the assistance schemes takes place, but it is possible from the first few months of compensation. For example, the amount of housing benefit increases at the time of the switch to ASS for jobseekers previously paid at the SMIC, thus compensating for part of the loss of unemployment insurance benefit. France is no exception: all OECD countries provide for the possibility of combining and compensating unemployment benefits with and other social benefits. And de facto, this combination within households in a given year seems very significant in France because of the extent of the social protection system in our country (see Figure 3). The use of data from the Tax and Social Income Survey shows that, in practice, households with a member who becomes unemployed actually receive a number of transfers (family allowances, housing, etc.), corresponding to around 12 to 15% of their disposable income. However, these transfers vary little on average during the period of unemployment, so that most of the insurance against loss of income due to unemployment is provided by unemployment benefits.

2

Benefits received by an unemployed person in France over 5 years (for a typical case), in %

Benefits received by an unemployed person in France over 5 years (for a typical case), in %

Reading: After 5 months of unemployment, a worker previously on minimum wage, in a couple with two children but whose spouse does not work, receives more than 50% of the average wage in France.

3

Accumulation between unemployment and other benefits (for a typical household case)

Accumulation between unemployment and other benefits (for a typical household case)

Reading: This Figure shows how people who have been unemployed for a whole year are compensated, through social benefits that depend on family circumstances or through individual benefits received by their spouse. Case of households in which at least one member has been unemployed for the whole year.

33In practice, there are three issues at stake for better coordination between unemployment insurance and low-income transfer schemes:

• The harmonization of ASS (unemployment assistance) with the other social minima;
• Harmonization of income support schemes for individuals with reduced working hours, or with a low level of earned income;
• Harmonization of transfer rules between high and low incomes.

Harmonisation of transfer rules between high and low incomes

37In terms of redistribution between high and low incomes, the unemployment insurance system plays an important role in parallel to the tax and transfer system. [29] Individuals at low wage levels are much more exposed to the risk of unemployment. Comparing unemployment insurance contributions and unemployment benefits, the net result is negative for the first four wage deciles, and always positive beyond that (see Vidalenc, 2020). [30] On average, the gap between benefits received and contributions paid by workers in the first two deciles is 400 euros per year, while it becomes negative, equal to – 1 450 euros for the last decile (Figure 4).

4

Annual balance between unemployment insurance contributions and unemployment benefits, by decile of salary

Annual balance between unemployment insurance contributions and unemployment benefits, by decile of salary

Reading: For the first decile of daily salary at the beginning of a career, the balance between amounts contributed and amounts received is a deficit of 390 euros on average.

38Unemployment insurance thus induces a significant redistribution, complementary to the tax and transfer system. The abolition of employee unemployment insurance contributions from October 2018, the subsequent adjustment of the CSG (not capped at 4 PASS i.e. the annual social security ceiling, in contrast to unemployment contributions) to compensate for the loss of earnings, and the decreasing profile of unemployment benefits for high earners introduced in July 2019 [31] have strengthened the redistribution stemming from unemployment insurance. The question of the base and modalities (wages of employees covered by unemployment insurance versus broader base, taking household income into account) of the redistribution operated by unemployment insurance should be raised in a broader reflection on the coordination between unemployment insurance and the whole tax and benefit system. This could be carried out by the proposed High Council for Unemployment Insurance (see below).

Coordination of job retention, access to employment and unemployment compensation

Adjusting the scope of unemployment insurance

47When it was created, unemployment insurance was primarily intended to cover the risk of unemployment for employees in the private sector. This limited area has become increasingly problematic as different types of employment emerged (fixed-term contracts in the public sector, self-employment…). These developments have led to an adaptation of unemployment insurance, but an imbalance in the management of unemployment insurance.

48Employers in the private sector have to affiliate their employees with unemployment insurance. On the other hand, for civil servants and non-civil servants of the State, local authorities and their public establishments, employees of public industrial and commercial establishments, State-controlled enterprises and semi-public companies, affiliation is not compulsory. These exceptions are not very consistent, especially since the Act of 2 February 2007, all public sector employees are eligible for unemployment benefit under the same conditions as private sector employees. The arrangements for financing unemployment insurance for public-sector employees [34] can lead to selection problems, leading employers whose employees have a low risk of unemployment to choose self-insurance and others to opt for unemployment insurance. Admittedly, in an insurance logic, civil servants are not called upon to contribute for a risk of job loss that does not concern them. It is nevertheless desirable to clarify the situation of the various employment statuses in the public sector vis-à-vis unemployment insurance in order to achieve a better balance between their employer’s contribution to unemployment insurance and the compensation expenditure they incur. Unified management of unemployment insurance should make it easier to achieve this objective than the current management, where the rules concerning public sector employees are laid down following negotiations between the State and the social partners in the public sector.

49From 1^st November 2019, self-employed persons who have received an annual income of at least €10,000 in the two years preceding their cessation of activity, justified by judicial liquidation, may receive unemployment benefit of €800 per month for six months. This compensation, which is significantly lower than that for employees, is financed by the State. It extends unemployment insurance coverage to categories hitherto excluded. However, it remains minimal and takes very little account of the diversity of self-employed workers, whose situation may be very similar to that of employees. This is particularly the case for economically dependent self-employed workers, whose income depends on a limited number of principals. Differences in the conditions of access to unemployment benefit between these workers and employees are difficult to justify since their risk factors for loss of income are very similar [35]. Adapting unemployment insurance to these changes in labour relations requires its scope to evolve beyond the scope of the social partners currently managing unemployment insurance.

50From 1^st October 2018, employee contributions for unemployment insurance for private sector employees have been abolished. Private sector employers pay a contribution equal to 4.05% of gross pay. UNEDIC has been compensated for the loss of income due to the abolition of employee contributions by a state payment financed by an increase in the CSG on all incomes. This change in the financing of unemployment insurance is consistent with the extension of its coverage beyond the scope of private sector employees. It is also part of a broader movement to finance social protection by taxes. It nevertheless implies that a significant proportion of unemployment insurance resources should come from income under the control of the State, which is not compatible, in the long term, with strictly parity-based management. All these elements should encourage an increase in the number of stakeholders involved in drawing up unemployment insurance rules, including representatives of the public sector and the self-employed (see below).

Evaluating the effectiveness of unemployment insurance and developing shared expertise

51The steering of unemployment insurance must be based on shared expertise based on systematic ex post evaluations. At present, the expertise missions of Pôle emploi and UNEDIC largely cover the same areas, but are not coordinated within a dedicated authority. Better synergies and economies of scale could be achieved by merging them.

52This coordination of evaluation is essential in order to build a consensus on the consequences of the various parameters of unemployment benefit and on the effectiveness of the various measures to support jobseekers. This is not currently the case, as shown by the divergent evaluations between UNEDIC and Pôle emploi on the impact of the change in the rules for calculating unemployment benefit –largely based on the same data– during the 2019 unemployment insurance reform.

53That is why we recommend the creation of a High Council for Unemployment Insurance in charge of this expertise. Based on the models of the Pension Guidance Council or the High Council for the Financing of Social Protection, this council, attached to the Prime Minister, would be responsible for:

• Coordinating the provision of information needed to calculate unemployment benefit and to monitor jobseekers;
• Describe the prospects for unemployment insurance in the light of economic, social and demographic developments and assess the conditions required to ensure its financial sustainability in an annual report;
• Participate in providing information on unemployment insurance and the effects of the reforms carried out or envisaged in order to accompany its evolution and conduct a broader reflection on the coherence between the redistributive effects of unemployment insurance and the tax and benefit system as a whole.

54This independent council would formulate its analyses and recommendations in reports to the Prime Minister, communicated to Parliament and to the single tripartite authority in charge of the implementation of unemployment insurance arrangements. Its reports would be made public. This High Council would create a shared consensus on the consequences of unemployment insurance, as well as the coordination of ex-post evaluations and all expertise. It would rely in particular on academic research, the services of the Direction de l’animation de la recherche, des études et des statistiques (DARES, Treasury Research, Studies and Statistics Division), Agence centrale des organismes de Sécurité sociale (ACOSS, Central Agency for Social Security) and the Direction de la Sécurité sociale (DSS, Directorate of Social Security), whose missions would be supplemented in this respect. [36]

• Recommendation 4. Establish a Haut Conseil de l’assurance-chômage (HCA, High Council for Unemployment Insurance) to co-ordinate and prepare all forecasts, studies and evaluations necessary for the development of unemployment insurance rules.

55While the governance of unemployment insurance needs to evolve in order to improve the coordination between the socio-fiscal system and employment policies, it would nevertheless seem desirable in the future to maintain an active role for the social partners in defining the rules of unemployment insurance. The social partners, in direct contact with employees and enterprises, are in fact better able to understand and raise the expectations of those working in the field.

56The current system with a framework letter drawn up by the executive and followed by negotiations between the social partners has not led to the hoped-for coordination. It must eventually be replaced by a system in which the State can assert its imperatives of balance and coordination, while taking into account the opinions and preferences of the social partners. To this end, we propose the creation of Conseil de négociation de l’accompagnement et de l’indemnisation des demandeurs d’emploi (CNAID, Council for Negotiating Support and Compensation for Jobseekers).

• Recommendation 5. Develop the parameters of unemployment insurance and the organisation of support for jobseekers within a Negotiating Council composed of representatives of all stakeholders: private and public sector employees, employers, self-employed workers, the State.

57The aim of this new organization is:

• To ensure better coordination of the parameters of unemployment insurance with the entire social and fiscal system at the design stage;
• To ensure better coordination between the objectives and modalities of support and compensation;
• To ensure the participation of all parties concerned in the design and implementation of unemployment insurance arrangements, thus ensuring that all interests are represented in the reforms and that feedback from various points of view is provided in the monitoring of implementation;
• Clarification of the financing of unemployment insurance.

58The balance of power within the CNAID is decisive. As such, two main scenarios can be considered:

• The state has the ultimate decision-making power and the social partners have an advisory role, joining the vast majority of OECD countries. The CNAID thus meets at the request of the State upstream of reforms relating to support and compensation rules. This scenario has the advantage of promoting the exchange of views of all stakeholders, while leaving the State considerable room for decision to ensure consistency between its economic policy objectives and unemployment insurance. However, it has the disadvantage of limiting the power and thus the responsibility of the social partners in the design and management of unemployment insurance;
• Power is shared in a balanced way, through vote-based decision-making rules, between the state, employee, employer and self-employed representatives (e.g. one third of the votes for the state, one third for employer and self-employed representatives and one third for employee representatives). The CNAID thus meets at the request of parties representing at least 30% of the votes. The rules on support and compensation for job-seekers are then set by a majority of votes. If an agreement is reached, it serves as a basis for preparing the articles of law submitted to parliament and for drafting decrees and orders. Only in the absence of an agreement is the State able to set the rules alone. This scenario limits the state’s room for action. On the other hand, it has the advantage of better involving the intermediary bodies and thus facilitating the development of more consensual rules.

59The new CNAID, drawing on the work of the High Council on Unemployment Insurance (see above), would draw up proposals on the parameters of unemployment insurance that would serve as the basis for legislative measures taken in the Projet de loi de financement de la Sécurité sociale (PLFSS, Social Security Financing Bill). Indeed, in order to ensure the consistency of the entire socio-fiscal system, the rules proposed by the Council should be the subject of legislative proposals discussed in the Social Security Financing Bill.

• Recommendation 6. Integrate the unemployment insurance budget into the Social Security Financing Act.

60The Social Security Financing Act would thus become the Social Protection Financing Act. It would include the main parameters governing unemployment compensation and would be completed by the necessary decrees for those aspects of regulation not covered by the law. This integration makes it possible to:

• To verify the effectiveness of the coordination between the parameters of unemployment insurance and the social tax system;
• To democratically control and legitimise decisions on unemployment insurance;
• Clarifying the financing of unemployment insurance, part of which has been financed from the state budget since November 2018;
• Better control the evolution of public expenditure as a whole.

61This recommendation is in line with those of the Court of Auditors (Cour des comptes), which advocates integrating all social protection expenditure into a comprehensive finance law, incorporating not only social security expenditure, but also supplementary schemes and unemployment insurance. [37] The European Directive of 8 November 2011 is part of the same perspective. It states that “Member States shall put in place appropriate mechanisms for coordination between sub-sectors of general government in order to ensure the full and consistent integration of all these sub-sectors in budgetary programming, in the elaboration of country-specific numerical budgetary rules, in the establishment of budget forecasts and in the implementation of multi-annual programming”.

62In conclusion, unemployment insurance reform cannot be limited to parameter adjustment. It must also profoundly modify its governance to better adapt to the current labour market. This Note suggests ways to achieve balanced and effective governance.