France needs to keep on reforming its labour market and pensions and healthcare systems to lift growth and ensure the long-term sustainability of its public finances, the Organisation for Economic Co-operation and Development (OECD) said today.
The Paris-based think tank said French growth had lost its edge over the past decade over big trading partners, such as German and Italy.
Several of the OECD's recommendations chimed with proposals by President Nicolas Sarkozy, including replacing the plethora of job contracts with a unified contract that would increase protection the longer a worker stayed with a firm.
The Organisation for Economic Cooperation and Development also told Paris to build on past reforms to make the labour market more flexible and to overhaul the pensions system to cope with an ageing population.
"Employment has been rising and the budget deficit coming down but persistent high unemployment and low participation reflect underlying structural problems that need to be further addressed," it said.
"Stronger employment growth would be beneficial for fighting poverty and social exclusion, as well as for boosting public finances." It also called for changes to the French education system, particularly at university level, to promote equal opportunities and prepare young people better for the labour market.
The OECD, which last month forecast French growth of 2.2 per cent in 2007 and 2008, said it seemed the economy was unable to take full advantage of higher domestic and foreign demand.
"The recovery remains rather hesitant and the slight but persistent growth advantage that France has had over important trading partners such as Germany and Italy for more than a decade seems to have vanished or reversed," it said.
It recalled its past recommendations that Paris improve competitive conditions and said: "Some progress has been made in these areas but more can be done." It told the French government to ensure the minimum wage, known as the SMIC, did not rise more quickly than the productivity of low-skilled workers and to avoid discretionary increases in the minimum wage.
The government has stolen a march by announcing on Monday that the minimum wage would rise by 2.1 per cent on July 1st with no discretionary supplement to the minimum inflation-related increase.
The OCED urged pensions reform, particularly for remaining special regimes which allow some public sector workers to retire before 60 on a full pension. "While young people suffer from especially difficult entry paths into employment, a striking characteristic of the French labour market is how quickly older people withdraw from it," it said. "Health and dependency care also present long-term risks for public finance."