France: The lessons of 1981

In France, higher wages (especially low wages), higher social welfare spending and public spending more generally, maintaining a low retirement age and cuts to working time are all common proposals today . All these economic policy measures were taken in 1981-82 after François Mitterrand was elected president: minimum wage increase (38% in total) combined with a reduction in corporate social contributions, increase in a number of welfare benefits (for families, housing, unemployment, old-age), sharp increase in public investment (+21% in 1 982), civil service job creation (162,000 new jobs between 1981 and 1983), reduction in working time from 40 to 39 hours and five weeks of paid leave, early retirement at 55 and full retirement at 60. What did this economic policy lead to ? The fiscal deficit became very high from 1981; interest rates rose; the tax burden was increased; cost competitiveness deteriorated; Inflation rose; The external deficit soon became very large, requiring a series of currency devaluations; Growth was boosted only fleetingly; Employment stagnated; Unemployment increased sharply, especially among the low-skilled; Corporate profitability fell and investment was depressed for a long period. These consequences ought to discourage the same policies from being conducted today, especially in a situation where it is no longer possible to devalue to restore cost competitiveness.