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As the economy has picked up, wage growth has reached levels not seen since 2008, reaching 3.3% in the third quarter.
As the economy has picked up, wage growth has reached levels not seen since 2008, reaching 3.3% in the third quarter.

Labor Shortage Threatens France’s Strong Growth

France simply does not produce enough of the skilled workers it now needs. That means that even as the country is enjoying its strongest growth in six years, the lack of skilled workers is creating production bottlenecks and snarling up supply chains

Labor Shortage Threatens France’s Strong Growth

Business is booming for Sylvie Guinard, who runs French machine manufacturer Thimonnier. The problem is, she can't find the enough staff–even in a country where millions of people are out of work.
Guinard, who has a workforce of about 80, struggled for months to find the 10 engineers and technicians she needed to try to keep pace with an order book that rose by a third last year, and she still has two roles unfilled, Reuters reported.
What's more, the situation's even more desperate at her suppliers. "They just can't find workers to make parts for us destroying all my orders," said Guinard, whose family-owned company near Lyon exports 85% of the machines it makes for the packaging industry.
Thimonnier and its labor shortages are emblematic of the wider French manufacturing industry and, in turn, other western countries like Germany and the United States where a strong economic rebound is outpacing the capacity of workforces.
The situation is most stark in France as the labor shortages—a problem that also afflicts the construction, engineering and IT industries—come despite a stubbornly high unemployment rate that is currently 9.4% and has not dropped below 9% for six years.

Massive Mismatch 
The reason for the simultaneous high unemployment and lack of workers is a massive skills mismatch. France simply does not produce enough of the skilled workers it now needs. That means that even as the country is enjoying its strongest growth in six years, the lack of skilled workers is creating production bottlenecks and snarling up supply chains, company executives told Reuters. That in turn is potentially capping how fast the economy can grow.
More than a third of French manufacturing companies are operating at full capacity, the highest level since early 1990, while 40% report difficulties recruiting workers, a quarterly survey from the Insee statistics office showed last month. In a sign of surging demand for labor, hiring on permanent contracts rose 6.4% in the fourth quarter to 48%, levels not seen since before the global financial crisis.
As elsewhere in the West, wage pressures are building and many employers are resigned to having to raise salaries at some point.
"There's a real skills deficit because many young people have turned their back on the industrial sector," said Guinard. "Bidding competition is going to set in, but it'll be disastrous for industry because it's already hard to get by with the hourly rates we have in France."
Economist Alexandre Vincent at the COE-Rexecode think-tank points to France's vast pool of unskilled labor as the main reason France has shortages of workers while the unemployment rate tops 9%.

Dangling Perks
Companies in France are moving to head this off by attracting skilled workers by other means, such as dangling long-term contracts, training and other perks.
For pumps and valves maker Poclain Hydraulics, this involves helping to pay for childcare, offering concierge services and even getting a bus stop built at the company's headquarters in an industrial park 55 km north of Paris.
"It's clear that the trend in France is towards wage pressure ... but for now it's limited," said Alain Everbecq, Poclain's head of human resources.
While he expected wage increases of about 2% this year, he said that could change when the company, which employs 2,400 worldwide and nearly 900 in France, reviews salaries in July.

Hiring, Margins
Many employers have until now avoided moving to permanent contracts over fears that under France's strict labor rules they would not be able to let workers go if business sours down the line.
President Emmanuel Macron helped ease those concerns with an overhaul of the labor code in September, his first major reform. However employers say it is largely booming client demand, rather than the labor reforms, that has pushed private sector hiring to record levels.
While companies may be doing their utmost to avoid raising wages, eager to protect margins after years of weak growth, they may soon have no choice as competition among employers heats up, said Alain Roumilhac, head of ManpowerGroup in France, the US staffing company's biggest market.
As the economy has picked up, wage growth has reached levels not seen since 2008, reaching 3.3% in the third quarter, according to the most recent data from the Insee.

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