Labor Costs in France Stabilize After Slowdown, an Aid to Workers' Purchasing Power

Labor costs in France have maintained a steady trend over the last several months, rising at about a 2-1/2% pace, year-on-year.These hourly data are reported for selected sectors of French industry, with mechanical/electrical manufacturers running just above 2.5% and business services just below that rate. Labor costs in the textile industry have seen a pickup this year to 3.2% in June from 2.3% in December 2004, while clothing and leather have risen slightly faster this year at 2.15% compared with 1.77%.

For workers, the flatter trends in machinery and services since last autumn would be a welcome development after several years of progressively slower gains. In addition, as noted in the table below, consumer prices through June had also slowed noticeably. In this comparison, we chose the CPI for urban workers, which may reflect more closely than the overall CPI the group covered by the labor cost data. The combination of the labor cost and CPI figures shows that through the first half of this year, the real purchasing power of hourly compensation picked up to about 1% for both mechanical equipment and service workers from only about 0.5% across last year. This is evident in the second graph.

Since June the CPI has begun rising more rapidly, with a 1.7% year-on-year increase in August. So the improvement in workers' purchasing power may have ended. But at least any slowing would be from a faster rate than had prevailed last year, and in the service sector, 2003 as well.