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HOUSEHOLD INCOME AND WEALTH IN FRANCE
by Baudouin Seys
August 2001
Baudouin Seys is Head of the Department of Consumer Pricing, Household Resources and Living Conditions at the Institut national de la statistique et des études économiques (INSEE – National Institute of Statistics and Information about the Economy). The opinions expressed in this article are those of the author. The standard of living (1) of households in France is 9% above the average for the European Union. During the last quarter of a century, it has risen more and more slowly. The standard of living of retired households has greatly increased: newly retired people have had more affluent working lives, and more women have been economically active and for longer periods. On the other hand, households in employment suffered from the problems in the labour market and efforts to contain wage rises, from the ’eighties onward. The disparities in living standards grew steadily less marked until 1990 and since then have remained stable thanks to the increasingly redistributive role of social transfers. The disposable income of a household in metropolitan France was EUR 1,075 (2) per month and per consumption unit, generally abbreviated to UC (3), in 1997, the last year for which figures are available. This figure is a median, splitting the population in two: one half has a higher and the other half a lower standard of living. This amount is net of tax and social contributions. It includes earned income (wages and salaries and income from one-person businesses), retirement and other pensions, unearned income (4) and social benefits (unemployment, family, housing, and the daily sickness allowance). On the other hand, it excludes reimbursements of medical expenses etc., and notional income such as the rent theoretically accruing to homeowners. France is one of the whole group of northern European countries where the standard of living is comparable (Table 1). Standard of living in the European Union (Gross domestic product per head: EU comparison, 1998)
National currencies are converted on the basis of purchasing power parities (rather than exchange rates). Gross domestic product at current market prices using current purchasing power standard and compiled on the basis of the European System of Accounts. Source: INSEE and Eurostat, European Community Household Panel. Components of household income Earned income accounts for around 60% of monetary income before tax (Table 2), pensions for about 20% and other forms of social income for close to 8% of the total; the latter include, inter alia, 2.4% derived from unemployment or redundancy benefits and 2.8% from family benefits. Unearned income (4) accounts for 13%. Finally, various regular payments from other households (maintenance, assistance which young people receive from their parents) account for no more than 1% of income, although they may be highly significant for some households. Components of pre-tax household income
*Estimate adjusted in the light of the national accounts. Source: INSEE, 1995 Family Budget Survey The main sources of household income vary with living standards. Social benefits (apart from retirement pensions) form a high proportion of those of low-income households: one third for households in the first decile (bottom tenth of income distribution, i.e. poorest households). Earned income (or pensions for the oldest) are the largest source (83%) in households whose standard of living is around or above the median, between EUR 1,000 and 1,800 per month and per UC. At the top of the scale of living standards, earned income is eclipsed by investment income, which constitutes one fifth of the income of households in the last decile (top tenth of income distribution, i.e. wealthiest households> Recent changes in living standards When adjusted for inflation, during the last quarter of a century, median disposable income per UC went up by 1.9% per year rising from EUR 647 in 1970 to EUR 1,075 in 1997 and expressed in terms of EUR year 2000 (Table 3). Living standards have fluctuated in line with economic growth. Until the second oil crisis (1979), they had benefited from the economic growth at the end of the thirty-year post-1945 boom ("trente glorieuses"). Median disposable income continued to rise fast, albeit more slowly, after the first oil crisis (+5% per year between 1970 and 1975, +3.7% per year between 1975 and 1979). During the economic downturn at the beginning of the 'eighties, it stagnated (+0.5% per year between 1979 and 1984). In particular, the situation of households dependent on income from one-person businesses was extremely serious. With the recovery at the end of that decade, median disposable income began to rise again but slowly (+1.1% per year between 1984 and 1990) because of the very strong pressure to contain wage rises in order to curb inflation. Moreover, from 1987, pensions were raised in line with the retail price index whereas previously they had been indexed to national average wage levels. Rises in median disposable income in France
Source: INSEE, Taxation Directorate, Tax Revenues Survey The economic downturn at the beginning of the 'nineties had a considerable effect on the improvement in median disposable income, limiting the rise to +0.4% per year between 1990 and 1997 because of the tight wage policies of companies and the increase in unemployment. The impact of the strong growth of the last three years of the century on the standard of living is still difficult to determine. This growth was achieved more as a result of an increase in jobs and a fall in unemployment than through higher wages and salaries because the implementation of the reduction of working hours from 1999 had a moderating effect on monthly wages and salaries. Substantial increase in pensioners' living standards The rise in living standards has benefited pensioners much more than the working population. In the last quarter of a century, the standard of living of the former rose twice as fast as that of the latter. In 1970, the average disposable income of a retired household (5) was 71% of the median one, while, by 1997, it was 97%. Since retired households are more often home-owners, studies which include an estimated notional rent in the income of owner-occupiers to allow for this conclude that the standard of living of pensioners is now higher than the median. However, this does not mean that this group of people has seen an increase in their purchasing power, at least since the 'eighties. Apart from the big hikes in pension levels at the end of the 'seventies, it is mainly the generational differences which account for the improvement in the situation of pensioners. Overall, each new generation of pensioners has enjoyed better careers than the preceding one and, above all, women have worked more frequently and for longer periods: a growing number of households are drawing two pensions. Changes in living standards of working households By contrast, the generations who began their working lives at the end of the 'seventies suffered the full force of the problems in the labour market and the pressure to contain wage rises from the 'eighties onwards: their careers have not been better than those of their predecessors. Changes in working households' living standards (4) depend on many factors, and not only on wage levels: improvements in qualifications and skill levels, reductions in working time, increases in the number of economically active women and unemployment and social transfers. Higher skill levels and rise in the hourly wage The average wage is increasing more quickly than wages in some of France's low-skilled sectors because of the growth in the most highly skilled job categories and in the highest-paid economic sectors. The higher skill levels are evidenced by the increase in the proportion of white-collar workers (from 7% in 1975 to 13% in 2000) and the drop in that of blue-collar workers (from 19% in 1975 to 8% in 2000). The development of the service sector at the expense of manufacturing industry has had a positive impact on wage and salary levels since service sector pay is 6-7% higher than the average. Altogether, the higher skill levels and growth in certain sectors of the economy have themselves led to a 0.7% increase in the average wage. This increase was particularly significant in the ’seventies, but has been less marked since. Statutory working hours fell from 40 to 39 hours a week in 1982 before falling to 35 hours between 1999 and 2002. Moreover, annual working hours had been cut through the statutory requirement to grant a fourth week of paid holiday in 1969 and a fifth in 1982. In fact, the annual number of hours worked recorded by businesses was regularly decreasing by 0.5% per year during the ’seventies, partly through a reduction in overtime. Between 1982 and 1999, annual working hours for full-time employees remained the same. Net annual wages and salaries of full-time employees, based on like-for-like job definitions, increased by almost 3% per year (in constant currency) during the 'seventies despite the reduction in the annual number of hours worked. In the ’eighties, in France as in most OECD countries, wage bargaining systems were made more flexible: they became based more on anticipated inflation rates for the coming year than on actual past inflation. During a period of deflation, this new method of wage negotiation limited rises. Until 1996, the increases in gross pay were absorbed by the increases in social contributions so that net pay, based on like-for-like job definitions (after deduction of social contributions), went down slightly. Since 1996, wages and salaries based on like-for-like job definitions have started rising again, even in 1999 (the last year for which figures are known), despite the fact that the 35-hour week was beginning to be introduced. Development of part-time working and increasing number of economically active women Part-time working has greatly increased, especially since 1990. In both the private and public sectors, the proportion of part-time employees has risen from 7% at the beginning of the ’eighties to 15%. Average monthly pay for part-timers is less than half that of full-time workers, principally of course because of the fewer hours worked; however, using hourly wages as the measure of pay, the part-time salary is still one fifth less than the full-time salary. The difference can be explained to a large extent by the lower skills required for these jobs (engineers, managers, technicians and supervisors rarely work part-time) and by the type of company (size and business sector). The explanation also lies in the youth, gender and inexperience of the workers involved. In particular, the strong growth of temporary contracts among part-time workers means that many of them have had very short periods of service with their companies. Women born after the Second World War have followed a very different pattern from that of preceding generations. Having for the most part entered the labour market at the end of their studies, they did not stop working with the arrival of one or two children or stopped only for a few years, in contrast with older mothers. Thus, today almost 80% of women aged between 25 and 49 are economically active, compared with 50% in 1970. Finally, unemployment has influenced wage and salary levels. Before the first oil crisis, the unemployment rate was less than 4% of the active population; it stayed above 9% from 1984, despite a slight improvement during the economic boom at the end of the ’eighties, peaking in 1997 (12.5%) and then falling with the strong growth of recent years until 2001, when it dipped below 9%. Household income from employment is thus affected by two contradictory trends. There is upward pressure from the higher skill levels, the greater number of economically active women, and, in some jobs, higher wages or salaries. On the other hand, the reduction in the number of working hours, especially through the growth in part-time working and unemployment, exerts downward pressure on the living standards of the employed. Reduction, followed by stabilization of inequalities The pace of the rise in initial income per UC for employed households has steadily slackened, moving from strong growth at the beginning of the 'seventies (+4.8% per year between 1970 and 1975) to a slight fall between 1990 and 1997 before starting to increase again after 1998. Initial income means the income derived from work, or possibly from previous work (unemployment benefits or the pensions which some members of these households may receive). Until 1990, the growth in this income was of greater benefit to the poorest households, and so led to a decrease in the inequalities between employed households. In contrast, the slight drop in initial income between 1990 and 1997 had greater impact the poorer the household, and initial income inequalities widened. Throughout this period, the main forms of redistributive transfer (family and housing benefits, minimum welfare benefits [i.e. Revenu minimum d'insertion (RMI) (6)], and income tax) increasingly contributed to narrowing the gap. Family benefits have long played the leading role in reducing income disparities. The growing impact of housing benefit since the 'seventies resulting from the setting-up of an individualized benefit system, led to it becoming the most important factor at the beginning of the ’nineties. This major change, together with the introduction of the RMI in 1989 have meant that the transfer system has increasingly reduced the gap between the highest and lowest incomes. By comparison, the impact of income tax-related changes has been much smaller. Taxes and benefits narrowed the income gap up to 1990 and have limited its widening since. Altogether, for all households, the inequalities in living standards grew narrower until 1990 and have remained stable since. France occupies an intermediate position: income inequality is greater in the UK, North America and southern Europe and markedly less in the Benelux countries and Scandinavia. Wealth According to the national accounts, average gross financial assets were EUR 194,000 per household (in 1997) and EUR 173,000 net of debt. Median wealth is two times lower than average wealth. In other words, wealth is very unequally distributed: 10% of the wealthiest households own half the wealth, 5% own 40% and 1% own 15 to 20%. The proportion of financial assets (savings, stocks and shares, life assurance, etc.) has gradually been increasing over the past twenty years. Today these account for half the wealth of private individuals. Housing accounts for 40% of gross wealth; part of this property has been acquired thanks to loans, with outstanding debt of 13% of gross wealth. Becoming a homeowner affects wealth composition. Before acquiring a home, wealth is frequently below the median and often confined to possessing one or more savings accounts. Home ownership transforms these investments into real estate for domestic use and often takes financial assets above the median. After that, the greater the wealth, the greater the diversification and domination of the interest-bearing investments. The highest personal fortunes consist mainly of shares and securities. (1) Translator’s note: in some countries, e.g. the UK, statisticians make fewer references to "living standards" in this context, referring instead to disposable income as a measure of potential living standards. (2) Amounts are given in EUR year 2000. (3) In order to take account of variations in the size and composition of households when comparing living standards, or income distribution, equivalence scales are used. An overall equivalence value is calculated for each multiple-person household by summing the appropriate scale values for each household member. In France, statisticians refer to "consumption units", abbreviated to UCs (units of consumption), with a single person counting as 1 UC, the first adult (head) of a multiple-person household as 1 UC, subsequent adults and children over 14 as 0.5 UC and children under 14 as 0.3 UC. So a couple without children counts as 1.5 UC and a couple with two young children as 2.1 UC. Theoretically, for example, to enjoy the same living standard as a single person with an income of EUR 1,075, a childless couple would need an income of EUR 1,612.5 and a couple with two young children one of EUR 2,275.5. (4) Unearned income is very difficult to assess. In fact such income is very greatly underestimated in household surveys; moreover, some of it is subject to standard deductions at source so that it does not appear on tax returns. Under the national accounting system, income from financial assets accounts for 13% of household income whereas declared income amounts to only 4%. (5) Households are classified according to their reference person. A retired household is one in which the reference person is retired and an employed household one in which the reference person is a salaried employee or self-employed; so households may receive other types of income than the one drawn by the reference person depending on the situation of the other members of the household. (6) RMI – minimum income guaranteed to all individuals over the age of 25 whose income from all sources is below a certain level Bibliography Accardo J., Les ménages fortunés et la gestion de leur patrimoine, Revenus et patrimoine des ménages ("Synthèses" series), Statistique publique, INSEE, 1997 Chambaz C., Guillaumat-Tailliet F. and Hourriez J.-M., Le revenu et le patrimoine des ménages, Données sociales, la société française, INSEE, 1999. Friez, A., Les salaires depuis 1950, Données sociales, la société française, INSEE, 1999. Breuil-Genier P., Inégalités de revenus et redistribution: évolutions 1970-1996 au sein des ménages salariés, France, portrait social 2000-2007, INSEE, 2000. Cléron E. and Séroussi G., Les salaires dans les entreprises en 1999, INSEE première, INSEE, 2001. Atkinson T., Glaude M. and Olier L., Inégalités économiques, Rapport du Conseil d’analyse économique, La documentation française, 2001. Hourriez J.-M. and Roux V., Vue d’ensemble des inégalités de revenu et de patrimoine, Inégalités économiques, Rapport du Conseil d’analyse économique, La documentation française, 2001./. |
