Transcript: Interview with Banque de France’s Head of Microeconomic Analysis Division Erwan Gautier

22 April 2024

By Isabel Teles – FRANKFURT (Econostream) – Following is the full transcript of the interview conducted by Econostream on 2 April with Erwan Gautier, head of Banque de France’s Microeconomic Analysis Division.

Q: Mr. Gautier, your paper, which was also published as a blog post on the website of the Banque de France, shows that negotiated wages in France have moderated, based on the first bargaining agreements of 2024. Could you please explain why negotiated wages are moderating and why you expect this to continue during the year?

A: Wage negotiations in France react with quite a delay to past inflation. The thing is that inflation started to moderate in 2023, so that the outcomes of wage negotiations only now reflect this moderation in inflation that started some months ago. And the other important determinant is related to the national minimum wage (Smic, in France), which is also indexed to past inflation and so reacts with some delays to the moderation in general price growth. This national minimum wage dynamic is important, especially at the sectoral level.

Q: You acknowledge in the beginning of the paper the importance of monitoring wage trends in real time. Do you also look at the Indeed wage tracker, which the ECB often mentions and monitors closely?

A: We monitor wage collective agreements because they have a direct impact on the wage dynamics and reflect discussions among social partners and actual decisions about wages. The Indeed wage tracker is a little bit different in the sense that it uses wages from job offers, so they’re not really negotiated wage increases, but rather the wages offered for new jobs. For France, the evolution of negotiated wages and the Indeed wage tracker are quite closely correlated.

Q: Do you mean in the sense that both show wage deceleration?

A: They are sending similar signals, and the respective levels of wage growth in France are very close even if these two objects are quite different in their concept.

Q: Overall, are the risks for wage deceleration balanced?

A: In France, wage negotiations follow a yearly calendar, in most sectors and firms, wage negotiations open at the end of previous year and are concluded during the first quarter. Our blog post summarises what we find for the year 2024 based on the first agreements. This is why it is very important to look at what is happening now, because this is the period where all social partners are discussing wages.

Q: Just to be clear, the results you have right now account for a third of the total of negotiations, meaning there are still two thirds to be completed, but you anticipate the moderating trend to be the same for the remaining negotiations.

A: Exactly.

Q: Is it possible to say that France’s wage developments are representative of the euro area? In either case, what is particular or general about France?

A: France represents a large share of the total employment in the euro area, so France is important to this extent. At the ECB, the wage tracker is based on the data on sectoral agreements used for this blog post on France. So, the negotiated wage increase you would find for France that is aggregated with other countries for the ECB’s use is the same that we use. One difference in France is that wage agreements are renewed usually every year whereas in Germany or Italy, wage contracts can last two or three years, meaning that the transmission of shocks to negotiated wages could be delayed.

Q: Since you mentioned that the ECB is also looking at these data, do you share the results of your analysis with them or is it just the hard data? Because your paper seems to point to a very clear deceleration trend. I wonder if the ECB is also looking at this very strong conclusion that you have.

A: The French data, the one we use here, are used as an input for the ECB negotiated wage tracker and also used as an input for the negotiation wage series published by the ECB.

Q: And might the data still missing in any way point to a different direction for wage growth?

A: No. We are still missing some sectors where negotiations did not reach to an agreement at this stage, but I think the signal is quite clear. Q1 would be slightly below 3.5% in France, which is below what we had in Q4 2023. This is something we could have expected because of the deceleration in prices and the slowdown in the national minimum wage. I think at a sectoral level it was quite expected, and it’s in line also with our wage forecasts in France.

Q: How does your expectation of future quarters look from today’s perspective? Can you anticipate something based on the data you already have?

A: In our latest forecast released in March, we expect that the wage growth would be of 3.2% in 2024, whereas headline expected inflation is expected to be close to 2% at the end of this year. Overall, this will bolster the purchasing power of wages.

Q: Even with wage growth above inflation, at the end of the paper you say the findings ‘support the scenario whereby the pace of wage growth contributes to the gradual return of inflation towards 2% by the end of 2024’.

A: Yes, in our latest forecast, headline inflation will be close to 2% at the end of 2024 and core inflation should be around 2.5%. The slowdown in wages should also contribute to lower price increases in services.

Q: The ECB is going to start cutting interest rates soon, the month doesn’t matter much, as Governor Villeroy said. Do you think this expectation of cuts, in addition to the fact that the economy is projected to pick up could encourage workers to demand more wage increases? What could happen in that scenario?

A: The blog post says clearly that we observe a moderation of negotiated wage increases compared to last year in France, but we also mention that, in terms of wage purchasing power, there are some gains in France this year because inflation decelerates more quickly. So, in France, the average wage increase will be above inflation at the end of this year, the gap is between 1% and 1.5%, which is quite important too in the sense that we expect gains in wage purchasing power in 2024.

Q: Profit margins are another central component in monetary policy discussion. It is not the subject of the paper, but do you have any insights as to whether firms would use high profit margins to absorb wage increases, even moderated ones?

A: What we show is that many firms and many sectors have increased wages to catch up with the minimum wage increases. They have also paid a lot of value-sharing bonus (prime de partage de la valeur, in France), which is another important aspect of the wage policy for larger firms, specially. And all this leads to an increase in wages, which was quite substantial compared to inflation in France. And it will be the case in 2024 since the wage increases will be on average above inflation.