Informations Rapides · 16 June 2021 · n° 153

In Q1 2021, labour cost index – wages and salaries increased by 0.4% and total labour cost index by 0.8% Labor cost index in industry, construction and services - first quarter 2021

In the first quarter of 2021, the payroll and the number of hours paid by employers rose moderately, in a background of continued activity restrictions in some sectors. This followed unprecedented variations of those two variables during the year 2020, marked by the economic recession related to the health crisis. Indeed, in 2020, both hours and wages 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 2020 is included in the labour cost.

In addition, various labour cost reduction measures are taken into account in the labour cost index and contribute to its variations until the first quarter of 2021.

First, 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 in 2020 and has raised the threshold to 2,000€ for firms having signed a profit-sharing deal; the announcement of the renewal of the scheme for 2021 under similar conditions came on March 15.

Next, the plan to support the tourism sector decided on May 2020 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 (list 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 and almost 350 million euros in Q1 2021.

Last, 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 first quarter of 2021, the labour cost index (LCI) - wages and salaries in the non-farm business sector increased, but in a lesser extent than in the previous quarter: +0.4% quarter on quarter, after +1.3 % (seasonally and trading days adjusted data). This increase was due to a slightly higher increase in the payroll than in paid hours.

Year on year, the LCI – wages and salaries also slowed down in the first quarter of 2021: +2.8%, against +4.4% in the previous quarter. Finally, the average working time per employee decreased by 2.8% over one year, which was significantly less than in the fourth quarter of 2020 (–5.7%). The year-on-year changes were less pronounced in the first quarter of 2021 than in previous quarters, as they now compare the current situation with that of a period – the first quarter of 2020 – already partially affected by the health crisis. The use of short-time working during the health crisis, a direct reflection of the drop in activity, resulted in a lower volume of work per employee and in a higher average hourly wage, with clerical, sales and services employees and industrial and blue-collar workers – the lowest paid employees on average – being the most affected by short-time working.

In Q1 2021, hourly wages increased in industry (+1.1% quarter on quarter after +0.6% in Q4 2020), and in services (+0.5% after +1.5%). However, these average trends may conceal more contrasting variations according to the sub-sectors of activity, reflecting differentiated use of short-time working. In construction, hourly wages decreased sharply in Q1 2021: -0.8% after +1.5%.

Compared to the previous estimation of 16th march 2021, the quarter-on-quarter variation of LCI – wages and salaries in Q4 2020 is lowered by 0.4 percentage points and its year-on-year variation by 0.2 percentage points. This revision is mainly due 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 first quarter of 2021, the total labour cost index (LCI) in the non-farm business sector increased slightly more than the LCI – wages and salaries alone, but slightly less than in the previous quarter : +0.8% quarter-on-quarter, after +1.1% in Q4 2020. The greater dynamism of the total LCI compared to the LCI – wages and salaries alone was mainly explained by the decline in the first quarter of 2021 of exemptions and subsidies for the payment of social contributions under the support plan for the tourism sector. On the opposite, the increase in the "1 young person, 1 solution" plan contributed to lowering the quarterly variation in the total LCI by -0.2 points.

Over the year, the total LCI rose by 2.6% in Q1 2021, which is lower than in the fourth quarter of 2020 (+4.0%).

Compared to the previous estimation of 16th march 2021, the Q4 2020 quarter-on-quarter variations in total labour cost index in the non-farm business sector has been revised downwards by 0.4 points, mainly for the same reasons as LCI – wages and salaries. The year-on-year change is lowered by 0.3 points.