Behind the objective of full employment, what exactly are we talking about?

“Full employment” is the watchword of Emmanuel Macron, who promised to reach 5% unemployment in 2027. It is also the title of the law passed in December which modifies the support for the unemployed and imposes working hours on RSA (active solidarity income) recipients, arousing the anger of the unions. Achieving full employment ensures billions of euros in additional revenue for the State: more contributions from employees, fewer unemployment benefits paid.

INSEE announced Thursday February 29 that salaried employment had not changed (0%) in the fourth quarter of 2003with an increase of 0.6% over one year, while the unemployment rate also stabilizes at 7.5% of the population active over the same quarter, after reaching a low level of 7.1% in mid-2023. Stable indicators, but far from the objectives set by the President of the Republic.

What are the differences between these indicators to measure the health of employment? Why set a target of 5% unemployment? What are the political implications of each of these statistics? Explanations

What indicators to determine full employment?

Economists speak of full employment when individuals who wish to work have no difficulty finding a position. To define this term, they restrict the population to active people, that is to say people who are of working age (between 15 years and 64 years, in the majority of international comparisons), who carry out an activity or who are looking for a job. This excludes people at home without professional activity, but also children, students and retirees.

Then, economists do not all agree on the metric to use: the activity rate, employment or unemployment? These are three different indicators, each with its own method of calculation:

• the activity rate is measured by relating the number of people of working age, the active (employed and unemployed), to the entire population from 15 to 64;
• the employment rate counts employed workers, compared to the entire population;
• the unemployment rate, finally, corresponds to the number of unemployed compared to all active workers.

What is the “minimum” unemployment rate?

Currently, unemployment remains the standard for defining full employment. In May 2023, with a rate close to 7%, the President of the Republic welcomed : “It has been forty years since the level of unemployment had been this low. Full employment objective! » But what unemployment are we talking about? The International Labor Organization distinguishes five types of unemployment :

• cyclical unemployment, dependent on an economic recovery;
• long-term unemployment (also temporary but longer), also cyclical;
• structural unemployment, linked to a mismatch between the skills of the unemployed and labor market demand;
• frictional or transitional unemployment, when a person wants to find a new job;
• specific unemployment, concentrated in certain groups of people or certain geographical areas.

The frictional unemployment rate is that which defines full employment: a threshold below which we cannot go. It corresponds to the deadlines for a worker to find a job or for an employer to recruit. “We can always try to reduce it by improving the dissemination of information on job offers and recruitment processes, but it is difficult”, explains economist Christine Erhel, director of the Center for the Study of Employment and Labor.

Currently, economists agree on a frictional unemployment rate between 4.5% and 5% for France. But the calculations may vary depending on the assumptions made to measure it, the period and the geographical area used. In the 2000s, the economist Jean Pisani-Ferry, taking an average search time for a new job of three months for people who have already worked, and six months for those entering the job market, estimated the frictional unemployment rate at 3.4%, and “stage unemployment” to achieve this at 5%. In Germany, Chancellor Angela Merkel promised for her last mandate to reduce unemployment to its absolute minimum, putting it at 3%.

Is the employment rate more reliable?

According to some economists, we should stop defining full employment by counting the unemployed and instead shine the spotlight on people who are working. In March 2000, European heads of state meeting in Lisbon adopted a full employment objective which, contrary to its traditional conception, was not given “in the form of an unemployment rate (which we would aim to reduce to a minimum deemed incompressible), but in that of an employment rate which we propose to increase”recalled the economist Jacques Freyssinet in a 2004 publication.

To have growth, you need a high employment rate which generates wealth. However, we can have a falling unemployment rate without the employment rate increasing, if the activity rate falls at the same time, with people leaving the labor market, out of discouragement, for health problems or to retire. “We saw this phenomenon very clearly in the United States after the “great recession” [2007-2008], explains Christine Erhel. Unemployment has fallen, but, at the same time, the employment rate has also fallen due to numerous withdrawals from the labor market, so we could not in reality speak of a return to full employment, the situation is remained below the pre-crisis level for a very long time. »

But neither the employment rate nor the activity rate takes into account underemployment, that is to say people who work less than they want, due to part-time work or partial unemployment. . A country can move closer to full employment by allowing precarious contracts to develop, with a high level of underemployment. To avoid this overvaluation bias, Mr. Freyssinet suggests instead calculating an employment rate in full-time equivalent.

What political strategy is behind these figures?

While the reality of work becomes more and more complex with the appearance of numerous intermediate situations and the development of atypical forms of employment (very short contracts, forced part-time work, independent work, etc.), the majority of economists agree on the importance of combining several indicators to clearly understand the contours of full employment.

Hesitations in the choice of indicators are also found on the government side. Thus, Emmanuel Macron announced in April 2023 his ambition to achieve “full employment of seniors” by advancing an employment rate objective of 65% for 60-64 year olds “by 2030”while it was only 36.2% in 2022.

This choice can also be seen as a communications trick: with the increase in retirement age, the unemployment rate which affects this age group will initially increase since the number of active people (the denominator) will be increased mechanically, before the employment rate rebounds.

Furthermore, focusing solely on a very sharp drop in the unemployment rate can have the side effect of fueling overheating of prices. This is also why the structural unemployment rate (frictional unemployment to which we add unemployment linked to the rigidities of the labor market) is also called in English “Nairu »For non-accelerating inflation rate of unemploymentunemployment rate below which inflation risks accelerating.

The target of 5% irreducible unemployment must be considered “as an objective, which reflects the ambition to reduce unemployment in a fairly historic way”, explains Alexandra Roulet, professor of economics at the European Institute of Business Administration and former macroeconomics advisor at the Elysée. For her, a drop below 7% would already be “a great victory”.