Informations Rapides · 18 March 2021 · n° 67

In Q4 2020, labour cost index – wages and salaries increased by 1.7% and total labour cost index by 1.5% Labor cost index in industry, construction and services - fourth quarter 2020

In a context of economic recession, related to the health crisis, the year 2020 was 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. During the fourth quarter, in relation to curfew measures and the second lockdown from October 30 to December 15, 2020, paid hours and payroll decreased again, but to a smaller extent than in the second 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 before rising again during the second lockdown in the autumn. Indeed, this system, which helps to contain job losses, leads to substitute compensation (not considered as wages) for part of the payroll. 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 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.

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.

Announced 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 ; the list of relevant activities was extended in October 2020). These measures are taken into account in the total labour cost index, amounting to 2.4 billion euros over the year 2020 evaluated from firms’ declarations.

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€, 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€ if the worker is older than 18 years old and up to 5’000€ otherwise.

In the fourth quarter of 2020, the labour cost index (LCI) - wages and salaries in the non-farm business sector rebounded: +1.7% quarter on quarter, after a 4.0 % decrease in Q3 2020 and a 5.0% rise in Q2 2020 (seasonally and trading days adjusted data). These variations resulted mainly from the fact that payroll decreased less than the paid hours during the lockdowns in the second and the fourth quarter, and thus rebounded to a lesser extent when constraints linked to the health crisis were less severe in the third quarter. It was partly the result of a composition effect: the employees most affected by short-time working and therefore by a fall in their paid hours are often clerical, sales and services employees and industrial and blue-collar workers, whose hourly wages are the lowest.

Year on year, the LCI – wages and salaries accelerated in the fourth quarter (+4.6%), compared to the previous quarter (+3.1%).

Finally, the average working time per worker decreased sharply in the fourth quarter: –6.1% year-on-year. The decrease is stronger than in the third quarter (–3.3% over the year) but far less than in the second quarter (–21.0%). These variations reflected a stronger use of short-time working during the autumn (related to the second lockdown) than during the summer, but to a lesser extent than during the spring lockdown.

In Q4 2020, hourly wages increased in industry (+0.7% quarter on quarter after –2.5% in Q3 2020), in construction (+2.1% after –3.3%) and in services (+2.0% after –4.2%). However, these average trends may conceal more contrasting variations according to the sub-sectors of activity, reflecting differentiated use of short-time working.

Compared to the previous estimation of 15th December 2020, the quarter-on-quarter variation of LCI – wages and salaries in Q3 2020 is lowered by 0.6 percentage points and its year-on-year variation by 0.4 percentage points. This revision is mainly due to to the revision of paid hours, as a result of short-time working compensation requests that firms can do with some months of delay.

In the fourth quarter of 2020, the total labour cost index (LCI) in the non-farm business sector rebounded in the wake of the labour cost index - wages and salaries: +1.5% quarter-on-quarter, after –4.0% in Q3 2020 and +5.0% in Q2 2020– seasonally and trading days adjusted data.

Over the year, the total LCI increased by 4.3%, a quicker pace than in the third quarter 2020 (+2.5%). However, as in the third quarter, these rises are slightly smaller than those for the LCI – wages and salaries. Indeed, sectorial support plans provide exemptions from employers’ social security contributions for some activities concentrated in wholesale and retail trade, accommodation and food service activities and administrative and support service activities, for a total amount observed of 2.4 billion euros over the whole year 2020. In the fourth quarter, this system only contributed –0.1 percentage points to the total labour cost index year-on-year variation, while the “1 young person 1 solution” plan contributed –0.3 points.

The Q3 2020 quarter-on-quarter and year-on-year variations in total labour cost index in the non-farm business sector has been revised downward by 0.4 percentage points, mainly for the same reasons as LCI – wages and salaries.