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Why Mélenchon’s minimum wage of 1,500 euros net would threaten employment and increase the debt

Earn 1,500 euros net per month, against just over 1,300 today (for 35 hours per month). The proposal of Jean-Luc Mélenchon, the leader of the left, will certainly please the two million employees who receive the minimum wage. How, when the labels indicate significant price increases on the shelves, oppose such a suggestion? If morally the commitment of Jean-Luc Mélenchon seduces, economically, the equation is much more sensitive. And for good reason, on the side of companies, and in particular those which are very consuming of unskilled labour, such an announcement would be a real blow. They will have to “follow” these increases and financially, they do not always have sufficient leeway. Thus, several SMEs in logistics, agri-food, transport, cleanliness could find it difficult to align themselves with this increase in the minimum wage.

For or against: should the minimum wage be increased to 1,400 euros net? Henri Sterdyniak (OFCE) against Gilbert This (Neoma Business School)

In a context of flat activity – in the first quarter growth was zero according to INSEE – the bet is risky. Especially since the multiplication of increases in the minimum wage – 3 in 6 months – is already shaking up the mechanics based on an annual salary appointment. This would cause additional social tensions, and destabilize the smooth running of businesses.

Settlement of salary scales

In addition, increasing the SMIC helps to flatten the wage grid. What about those who today are slightly above the minimum wage and whose remuneration is not indexed to inflation? They would ask for a catch-up. In fact, it is not two million employees who would be affected by these increases, but many more. Because this would impact the other levels of the salary grids.

Especially since today many professional branches are still below the minimum wage. Nearly 85% of the 170 whites with more than 5,000 employees would even be in this situation according to the unions. CFDT and CGT in the lead regularly ask that these branches align.

Inflation/wage loop

These successive increases – after an increase of 6% in 6 months – also risk fueling the vicious inflation/wage circle

If companies pay employees better so that they can cope with inflation, they will be tempted to cut back on their margins, and raise prices even more… and employees will ask for more wage increases… etc. etc… This snowball effect can destabilize the economy. Even if in France, the risk of this inflation/wage loop is a little lower because wages remain low.

In this regard, the Governor of the Banque de France, François Villeroy de Galhau is blunt: “wage increases will be ‘puffed up’ in the months that follow by the additional inflation, and everyone is a loser”.

Threat to employment

Finally, one of the risks often pointed out concerns job creation. If the minimum wage is too high, too high as is the case in France, employers may be discouraged from hiring. This will slow down the drop in unemployment.

Thus, the economist, former adviser to Jean Castex, Marc Ferracci, – today a candidate for deputy, under the label of the presidential majority – published a tweet this Sunday, in reaction to the words of Jean-Luc Mélenchon: “raising the Smic from 1,300 to 1,500 euros net amounts to an increase of 15%… When we know the elasticity of employment at the level of the SMIC according to the evaluations: 10% increase in the SMIC leads to a decrease of 10% employment at this level.. With 2 million employees at the minimum wage… it would therefore be 300,000 jobs destroyed.

An additional debt burden

Finally, the state employer will be subject to the same pressures as private employers. If the minimum wage is increased to 1,500 euros, it will also have to raise the minimum wage at this level for public officials. However, according to the calculations of François Ecalle, of the Fipeco site, a 1% increase in the remuneration of agents costs two billion euros.

As the French State has no room for manoeuvre, it will resort to borrowing to finance these increases. Enough to dig a little deeper into the debt, which in a period of rising interest rates will further increase our burden. This is why in this context, Emmanuel Macron, prefers to go through targeted and punctual devices to help the French to make ends meet.

The Head of State has promised to encourage companies to pay tax-free premiums – via the famous so-called “Macron” premium, the amount of which, excluding taxes and contributions, will be increased to 6,000 euros annually – but also an increase in the premium for activity for the most precarious workers or measures such as the distribution of a food check for the most modest households…