Report on pay gap and distribution of added value and profits in France

On 13 May 2009, the director general of the National Institute of Statistics and Economic Studies submitted a report on the distribution of added value and profits as well as on the pay gap in France to the French President, Nicolas Sarkozy. The trade union and employer organisations reacted rather positively to the report, albeit their differing analyses in relation to its findings. President Sarkozy has given the trade unions and employers until 15 July to submit proposals for reform.

Following the joint trade union demonstration on 29 January 2009 (FR0902029I) and the social summit on 18 February 2009, at which the trade unions set out their wage claims in particular (FR0903029I), the French President, Nicolas Sarkozy, asked the Director General of the National Institute of Statistics and Economic Studies (Institut national de la statistique et des études économiques, INSEE), Jean-Philippe Cotis, to ‘analyse added value distribution, profit sharing and the pay gap, in close consultation with the most representative trade union and employer organisations at national level’.

Main findings of report

The 90-page report on the Distribution of added-value and profits, and the pay gap in France (Partage de la valeur ajoutée, partage des profits et écarts de rémunérations en France (445Kb PDF)) comprises three sections analysing:

• the distribution of added value generated by companies outside the financial services sector;

• the overall wage bill and dispersion of earned income;

• profit sharing and usage.

Based on available data and having outlined a range of methodological safeguards, the report states that ‘the distribution of added value appears to have been relatively stable for the past 20 years’ and that ‘all labour compensation accounted for 67% of total added value in non-financial companies’. However, the report did highlight the fact that this is not a uniform figure as ‘a quarter of companies devote over 89% of their added value to wages’ while ‘another quarter of businesses devote under 44% of their added value to wages’.

The report observes that ‘on average, since 1990, distributable surplus productivity has been 0.7% of gross domestic product (GDP) a year, whereas during the 1980s, it reached over 2% of GDP a year’.

Likewise, unequal wage development was highlighted, with ‘the gap occurring at the level of very high salaries’. The report notes that mid-ranking or intermediate level employees ‘have felt outstripped by the highest salaries and that they have been caught up by the lowest salaries’ due to minimum wage increases (FR0805049I) and ‘social welfare contributions that have crippled the growth of net salaries’.

Furthermore, the report notes that, partly as a result of the surge in stock market prices, dividends distributed to shareholders have increased five-fold over the course of 25 years. Thus, the current distribution of profits is as follows: 57% are allocated to investment, 36% to shareholders and 7% to employees. The report also observed the growing weight of employee savings plans, which increased from 0.5% in 1990 to 1.5% of added value today.

In conclusion, according to the report, ‘net salaries have risen very little over the past 20 years’ with root causes being ‘a lack of dynamism in apparent labour productivity’, the high level of ‘social protection funding’ and ‘the rise in insecure employment’.

Reactions of social partners

The Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) responded rather positively to the report. The employer organisation stated that its proposals at the discussions with the trade unions from May onwards would focus on employee savings schemes.

On the trade union side, the General Confederation of Labour (Confédération générale du travail, CGT) announced that it was ‘refusing to be hemmed in to a narrow debate on profit sharing and participation’. The French Christian Workers’ Confederation (Confédération française des travailleurs chrétiens, CFTC) argued that ‘a wage agreement signed at the very least during the two or three previous years should be a prerequisite to any shareholding and profit-sharing payments being paid out’. The French Confederation of Professional and Managerial Staff – General Confederation of Professional and Managerial Staff (Confédération française de l’encadrement – Confédération générale des cadres, CFE-CGC), wants ‘employee savings schemes to be developed in small and medium-sized enterprises (SMEs)’.

For the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), ‘the report should not go unheeded, which is why CFDT is asking employers to start negotiations on corporate governance’ and ‘the government to take tax measures by repealing the tax cap and creating new income tax brackets to make it more progressive’.

The General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO), called for the wage share of added value to be re-established, judging that the Cotis report’s review of added value and profit distribution confirms ‘the spectacular increase in dividends’ and ‘the significant rise in high salaries’. According to the trade union confederation, this also demonstrates the need for a ‘structural reform aiming to distribute wealth differently, with the current distortion being the root cause of the crisis’.

Commentary

Following the joint trade union demonstrations on 19 March and 1 May 2009 and ahead of those that took place on 26 May and 13 June (FR0906019I), the Cotis report has made wages a key social issue once again. Other studies are due to follow the report, including one by the Council of Economic Analysis (Conseil d’analyse économique, CAE) which comprises experts reporting to French Prime Minister François Fillon.

The different opinions of the employer and trade union organisations will most likely make it difficult for them to come forward with joint proposals, which could bring about any changes of the current situation of added value and profit distribution by the summer of 2009 – the time when the government is intending to take up the social partners’ proposals.

Benoît Robin, Institute for Economic and Social Research (IRES)