Student protests and economic stagnation are weighing on France

The student protests, sometimes with massive use of violence, are alarming France. They come at a time in which not only is the polarization of the political debate intensifying, but economic prospects are also clouding over. France's economic output fell by 0.2 percent in the first quarter and stagnated in the second quarter. At the same time, the financial markets are becoming increasingly critical of national debt. The risk premium for French bonds over German bonds was around 140 basis points on Monday. For comparison: at the beginning of September there were still fewer than 90 points.

“There is no more growth,” complained employer president Patrick Martin, referring to the government’s draft austerity budget, which is intended to further increase the tax burden on companies. France is “already in a slight recession”. Martin is not alone in his lament: the national statistics office Insee reported a deteriorating business climate in September, and the opinion research institute Odoxa reported the greatest pessimism among the population in a survey since the survey began in 2006. 90 percent of French people are skeptical about their country's economic future. The decline of schools and other state infrastructure is omnipresent in the public debate.

The gloomy mood is not a new phenomenon, but can be linked to the dissolution of parliament in the summer of 2024. Since then, France has no longer been governed in a stable manner, the business climate has stagnated, and companies have been complaining about a reversal of President Emmanuel Macron's reform policies. Growth rates are weak and the upswing in the labor market has come to a standstill. Unemployment has increased every quarter since 2024. According to figures from the national statistics office Insee, it rose from 7.4 to 8.3 percent during this period.

The consequences can be far-reaching

Young French people are being hit disproportionately hard by this weakened labor market dynamic. According to Insee figures, the unemployment rate in the 15 to 24 year old age group rose from 18 to 21.6 percent between the second quarter of 2024 and the second quarter of this year - although it was already high in a European comparison and more than twice as high compared to Germany. “The main problem for young people is access to the labor market and finding their first permanent job after completing their training,” emphasizes Tomasz Michalski, professor of economics at the Paris School of Economics.

What makes matters worse is that young French people, if they do find a job, do not find it nearly as easy to get a permanent employment contract as in Germany. Many companies shy away from this because of the strict protection against dismissal and the high social security contributions. Young French people need an average of 19 months to get their first permanent employment contract, Insee analyzed three years ago. For people with little or no education it can be as long as 34 months. The consequences can be far-reaching: uncertain future prospects, more difficult family planning, disadvantages when taking out a real estate loan.

Many entry-level jobs could disappear

The reforms in the first years of Macron's presidency had a big impact, says HEC economist Michalski. By promoting in-company training, the number of trainees increased from around 300,000 in 2017 to 900,000 in 2024. But the progress was not sustainable. According to Michalski, the fact that youth unemployment has been rising again since then is due not least to reduced funding.

Added to all this is a new problem: artificial intelligence. According to a recent survey by the French Association of Human Resources Managers, ten percent of employers have already reduced their hiring of young professionals and trainees due to the increasing spread of AI applications. A further 22 percent said they were thinking about such a reduction in hiring.

Many entry-level jobs could disappear due to AI-driven automation, says economist Michalski. This would make entry into the job market increasingly difficult, even for those with university degrees at master's level.