Testing the effectiveness of the French work-sharing reform: a forecasting approach

The macroeconomic impact of the French work-sharing reform of 2000 (a reduction of standard working hours in combination with wage subsidies) is analysed. Using a vector error correction model (VECM) for several labour market variables, as well as inflation and output, out-of-sample forecasts for 2000/2001 are produced. A comparison of these forecasts - which serve as a benchmark simulation without structural shifts - to the realized values (with shifts) suggests significant beneficial employment effects of the policy mix. Other shifts were absent and thus cannot explain the outcome. Output, productivity, hourly labour costs, and inflation are only transitorily affected or not at all.