Hiring Difficulties Cloud France’s Economic Recovery

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France’s sooner-than-expected economic recovery from the slump during the Covid-19 pandemic is reviving deep problems in the labor market that have long hobbled growth, the country’s central bank said.

While activity in the euro area’s second largest economy is nearing normal more quickly than the Bank of France forecast in June, with 6.3% growth now expected this year, companies are reporting a sharp rise in hiring difficulties. There are also persistently low employment rates among the oldest and youngest workers.

France is not alone facing a looming struggle to find or retrain workers in the wake of the Covid pandemic. In Germany, the pandemic aggravated a long standing shortage of labor in some sectors, while in the U.K. the difficulties in finding workers are already fueling an escalation of wages.

What makes France’s situation more concerning is a combination of the problem with a relatively high rate of unemployment.

“It’s a socially unacceptable paradox, and it’s our greatest economic challenge -- there are no more urgent and necessary reforms than those that increase the supply of available labor,” Bank of France Governor Francois Villeroy de Galhau said in an interview with French newspaper La Croix.

The government can’t just rely on the effects of the current rebound, Villeroy said. He called on public authorities and companies to improve apprenticeships and training and make work more attractive with a combination of higher salaries and changes to unemployment benefits.

Using such reforms, he said France could raise it’s trend growth rate to around 2% from around 1% before the Covid pandemic.

“I am confident in our catch-up -- the choice ahead of us is whether we give ourselves the means to advance a bit faster,” Villeroy said on France 2 television Tuesday. 

As well as upgrading its short term growth forecasts, the Bank of France raised its inflation forecasts in its latest economic outlook. Raw material and manufactured goods prices were stronger than expected over the summer and the central bank sees increasing pressure coming from wages and the service sector in 2022 and 2023. While it expects inflation to subside from next year, there are risks to the upside.

“We are vigilant without being worried,” Villeroy said. 

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