Fall in the level of GDP relative to GDP without the COVID crisis: The key question is the distribution between per capita wages and employment

We will use the example of France, but our analysis applies to all OECD countries. At the end of 2021 and again in 2022, there will remain a significant shortfall in the level of GDP (6.3% in 2021; 4.4% in 2022) relative to the level of GDP that would have appeared without the COVID crisis. The question is therefore how this loss of GDP level will be distributed among different economic agents. If fiscal policy remains as announced, the expected level of GDP factors in the effects of fiscal deficits; for the government to bear part of the shortfall in the level of GDP, it would have to increase the fiscal deficit compared with what has been announced, which is not foreseen currently. It is very likely that companies will be able to rapidly restore their profitability by curbing wages and employment, and also thanks to government aid; they are therefore unlikely to suffer a loss of income despite the loss in the GDP level. So the loss in the GDP level will have to be borne mainly by employees. If the payroll has to decline as much as GDP, this may be achieved either by a fall in per capita wages or a fall in employment. The question of the distribution of the loss of payroll between per capita wages and employment will therefore be key: wage moderation will be able to prevent job losses.