France’s Welfare State Too Big To Shrink?

Written by Hilary Barnes

Jean-Philippe Delsol here has caused a certain interest in France and abroad with an estimate that more than half the labour force in France is paid by the government. The total he arrives at is 14.5m persons.

The labour force in France is about 28.5m (OECD). There are 3.2m unemployed (part of the labour force, of course) and employment in the market sector is about 16m (INSEE; the official statistical office of France).

Add 16m to 14.5m and the sum is 30.5m, which is two million more than the labour force and over four million more than the employed labour force, at 26.3m in 2013, according to INSEE, (which introduces a further discrepancy: if the labour force is 28.5m and there are 3.2m unemployed, employment should be about 25.4m).

Something wrong here and there, it seems, and I am not expert enough to sort it all out.

Delfol adds 1m people working in agriculture to the total paid by the public sector, on the grounds that subsidies from the European common agricultural policy account for half the wage bill.

He also adds 1m working for “associations” as working for the public sector. These are defined as non-market sector entities by INSEE, although it is probably true that a significant proportion of those employed by the associations would not have a job unless the association concerned was receiving money from the public sector. The associations are, among other things, employers of a large number of those enjoying salaries through government-financed “assisted jobs”.

He finds another 2m jobs in parapublic organisms, which is to say operations in entities that are controlled by the state or local authorities, although in most cases these entities will be paying employees out of revenues from the sale of services. Think SNCF, the state railway operator.

The INSEE figure for public sector employment, including administration, education and health, totals 7.58m salaried personnel in 2012.

That makes about 26.6% of the labour force and 28.9% of total employment.

There are, of course a lot more people deriving an income from the state in addition to those who work for the public sector, but it is not so easy to arrive at at a total figure that every one would agree was a fair estimate.

In some European countries, all those who receive welfare incomes will be receiving these incomes from the state, as they will be financed directly from general tax revenues.

That is not the case in France, where, in principle, most social welfare incomes are financed by compulsory levies, known as social insurance charges, paid partly by the employer and partly by the

employee. These are administered by the social insurance system, and these systems are co-managed by the labour market partners.

The recipients of social welfare incomes, including pensions and unemployment benefits, are therefore benefiting from money which they themselves have helped to finance through social charges, although many may consider that social charges are just taxes by another name and any attempt to define them as something else is philosophical splitting of hairs.

As the social insurance system these days runs a hefty deficit, which is met by the state, it is true to say that the recipients of welfare benefits are at least partially dependent on the state, but only partially.

Whether French recipients of welfare incomes see themselves as being dependent on the public sector or not I do not know, but the question has a certain interest.

People who regard themselves as dependent on the public sector for their incomes are, one must assume, more likely to favour politicians who extol the virtues of a large public sector than those who would like to see the public sector reduced and the weight of the private sector increased.

If a majority of the voters are, or consider themselves to be, dependent on an income from the state, a country risks finding through the ballot box that the welfare state is, demographically speaking, too big to shrink. That may well be the case in France.

It can also be argued, as Mr Delsol does, that when a large share of the labour force is dependent, directly or indirectly, on the public sector, is will tend to reduce productivity, or, as Frederic Bastiat, French nineteenth century economist, put it (he is quoted by Delfol):

“The state is a grand fiction though which everyone endeavours to live at the expense of everyone else.”