France needs to keep on reforming its labour market and pensions and healthcare systems to lift growth and ensure the long-term sustainability of its public finances, the OECD said on Wednesday. The Paris-based think tank said French growth had lost its edge over the past decade against big trading partners, such as German and Italy.
Several of the OECD's recommendations chimed with proposals by President Nicolas Sarkozy, including replacing the current plethora of job contracts with a unified contract that would increase protection the longer a worker stayed with a firm.
The Organisation for Economic Cooperation and Development also told Paris to build on past reforms to make the labour market more flexible and to overhaul the pensions system to cope with an ageing population.
"Employment has been rising and the budget deficit coming down but persistent high unemployment and low participation reflect underlying structural problems that need to be further addressed," it said.
"Stronger employment growth would be beneficial for fighting poverty and social exclusion, as well as for boosting public finances." It also called for changes to the French education system, particularly at university level, to promote equal opportunities and prepare young people better for the labour market.
Economy Minister Christine Lagarde said in a statement the report picked up on a number of themes that were already in the plans of President Nicolas Sarkozy and she reaffirmed France's commitment to getting rid of the budget deficit by 2012.
"In order to build on this growth we will carry out our policy of modernising the state and reducing public spending in order to do away with the budget deficit by 2012," she said.
The OECD, which last month forecast French growth of 2.2 percent in 2007 and 2008, said it seemed the economy was unable to take full advantage of higher domestic and foreign demand.
"The recovery remains rather hesitant and the slight but persistent growth advantage that France has had over important trading partners such as Germany and Italy for more than a decade seems to have vanished or reversed," it said.
It recalled its past recommendations that Paris improve competitive conditions and said: "Some progress has been made in these areas but more can be done."
It told the French government to ensure the minimum wage, known as the SMIC, did not rise more quickly than the productivity of low-skilled workers and to avoid discretionary increases in the minimum wage.
The government has stolen a march by announcing on Monday that the minimum wage would rise by 2.1 percent on July 1 with no discretionary supplement to the minimum inflation-related increase.
The OCED urged pensions reform, particularly for remaining special regimes which allow some public sector workers to retire before 60 on a full pension. "While young people suffer from especially difficult entry paths into employment, a striking characteristic of the French labour market is how quickly older people withdraw from it," it said.
"Health and dependency care also present long-term risks for public finance." The comments come at a time when France's plans for tax breaks are causing financial markets to question whether it can respect its promise to its European Union partners to cut its budget deficit. The OECD did not, however, make any comments on the short-term budget outlook.
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