The Real Cost of the French Social System

My last post inspired me to do some research. I was curious to see exactly how much tax the French minimum wage employee pays, on average, and how much the employer has to set aside from his revenue to employ one person at the cheapest possible rate.

I found that the situation is worse than I thought. I had written that the employee and the employer paid each about $400 in taxes, out of a total employee gross salary of $1,856. I was wrong. The employee pays around $400, but the employer pays $730, that is to say between them, they pay $1,132.45, out of a total gross salary of $1,856.

This sounds impossible; but remember that the employer pays over and above the gross salary amount declared to the employee. Therefore, the employer must set aside $2,589.70 in order to give the employee $1,458. The total taxes paid to the government represent 44% of this total sum set aside, and the employee gets only 56%.

Here is a list of the charges that the employee and employer must pay, in different proportions:

Health Insurance
Old Age Insurance
Family Pension (all families get a sum per child, only paid by employer)
Workman's Comp (only the employer pays)
Solidarity Contribution (kind of a general tax to help pay back the social services deficit; only employer pays)
Housing Assistance (FNAL, employer pays)
Unemployment
Cessation of Activity Insurance (AGS, employer pays to insure payment of an indemnity to employees forced out of work)
Supplemental Old Age Insurance
Another Supplemental Old Age Insurance (AGFF)
General Social Contribution (CSG, another general social services tax, paid only by the employee)

(Source.)

This does not include personal income taxes, which for a minimum wage employee would be minimal.

On the other side of the equation, you must keep in mind that this employee receives medical care at extremely reasonable prices (e.g. $20 per visit, no charge for hospitalization), retirement benefits at about age 65 (some government employees get it sooner), unemployment benefits that are extremely generous--or a pension if the person cannot find work after a year or so (the RMI), disability compensation, housing allowance according to family situation and salary considerations, a pension for each of up to three children until they reach 18, a pension for unwed mothers (and there are many unmarried couples, given this incentive), free state education including university (room and board not included), a workweek presently limited to 35 hours plus occasional overtime, five weeks required vacation (even if they are on unemployment), state-paid job training and reorientation assistance, a guaranteed job contract that prevents the employer from letting the employee go without generous compensation, and other benefits that I forget.

This all sounds great for the employee, doesn't it? The only problem is that the reality of work conditions (sometimes very tough), the level of taxes, the employer limitations, the very competitive black market, plus the cost of this huge government structure where 25 percent of the citizenry are employed, create for job competition where there are 100 applicants for every single offer, if not many more. Unemployment continues to bobble above 8%. The French economy is struggling. It's a wonder they're still a viable nation.


[Thanks to gftforex.com for the chart comparing US and French unemployment figures. Click on it for a larger version.]

And I haven't even mentioned the monopolistic strength of the five official French unions, the other taxes like the 70 percent gas tax and the 19.6 percent sales tax on everything, the penalizing taxes upon the wealthy that chase them from the country, the proportionately more heavy taxation of those earning more than the minimum wage, the dangers of trying to outwit the government inspectors while milking the system, and the social unrest that these collective pressures create. It is perhaps this last that is the most precarious.

There are reforms in the air; but watch your calendars for mid-November. There are also reactionary strikes in the works that should make for good television. It's not easy to take candy this good from such strong babies.