15 December 2020

2020- n° 317

In Q3 2020, labour cost index – wages and salaries decreased by 3.4% and total labour cost index by 3.6% Labor cost index in industry, construction and services - third quarter 2020

In a context of economic recession, related to the health crisis, the first three quarters were impacted by unprecedented variations of payroll and hours paid by employers. These variables decreased sharply in the first half-year, especially during the lockdown period from March 17 to May 10, 2020, before rebounding sharply in the third quarter.

- These strong variations were mainly due to an extensive use of short-time working compensation during the first lockdown, which sharply shrunk during summer. Indeed, this system, which helps to contain job losses, leads to substitute compensation for part of the payroll, regarding non-working periods that are partially or totally supported by the state and UNEDIC. Short-time working compensation requests can be done with some months of delay. Since the health crisis emergence, estimations are more likely than usual to be revised, especially in sectors with an extensive use of short-time working. The sharp upward revision of labour cost index – wages and salaries in Q2 2020 compared to the previous estimations of September 2020, is due to these late adjustments, but also to the identification of inconsistencies and their corrections in the declarations of paid hours of some firms.

- The short-time working system existed before the health crisis but the government strengthened it when this crisis emerged: from March to May 2020, the government fully refunded the legal compensation (70% of gross wage within the limit of 4.5 times the minimal wage). From the 1st June, the legal indemnity remained fixed at 70% of the gross wage, but, with a few exceptions, the government only covers 60%. The labour cost indices measuring only the cost supported by employers for the employment of their employees, the hours compensated for short-time working and the corresponding compensations paid to the employees are not taken into account. On the other hand, the portion of short-time working allowance not covered by the government as of June is included in the labour cost, amounting to 0.4 billion euros in non-farm business sector in the second quarter and to 0.1 billion euros in the third quarter.

- The series of hours worked per job produced by Dares (Statistical service of the Ministry of Labour) and usually used for the calculation of labour cost indices has been suspended in the first semester 2020, due to the replacement of the Acemo quarterly survey by a flash survey on activity and employment conditions of the workforce specific to the health crisis (Acemo-Covid). Thus, since the publication of Q1 2020, the hours used have come from a new source used for this goal: the nominative social declaration (DSN), covering paid hours (excluding short-time working).

- The special bonus for purchasing power passed by French Parliament in late December 2018 has been renewed in 2020: the original system planned that only firms having signed a profit-sharing deal could pay up to 1’000€ free of any tax, to employees whose wage was lower than 3 times the minimal wage. With the health crisis, the government has allowed all firms to pay this bonus and has raised the threshold to 2,000€ for firms having signed a profit-sharing deal. In Q3 2020, this bonus contributed +0.3 percentage points to the year-on-year change in the labour cost index – wages and salaries and +0.2 percentage points to the year-on-year change in the total labour cost index.

- Announced by the government on 14th May 2020, the plan to support the tourism sector provides for exemptions from employers’ social security contributions and assistance with the payment of contributions for the firms with fewer than 250 employees in some sectors (especially concentrated in trade, accommodation and food services and administrative and support service activities). These measures are taken into account in the total labour cost index, amounting to 1.7 billions euros evaluated from firms’ declarations. For the previous release, as these data were not available, these measures were taken into account based on the figure provided for in the third draft amending finance bill (2.2 billions euros). This gap between forecast and observed data contributes to the total labour cost index upward revision, for around 0.3 index points in the non-farm business sector.

-The “1 young person 1 solution” plan, launched at the end of July 2020, provides under certain conditions for a premium, up to 4,000 euros, to the employers hiring a young worker under 26 years of age. It also provides for an exceptional assistance when hiring a young worker with a sandwich course contract, up to 8,000 euros if the worker is older than 18 years old and up to 5,000€ otherwise.

- As of 1st October 2019, the employers’ contribution general exemption, consisting in lowering the employers’ social contributions for wages lower than 1.6 times the minimal wage has been extended to the unemployment insurance contribution (with a rate of 4.05%). Thus, the amount of exemptions under this measure increased by 900 million euros in Q4 2019, lowering by 0.5 points the total labour cost index. This effect no longer affects the quarter-on-quarter variations but still impacts the year-on-year variations.