A study Widely relayed claims that a direct job created in industry generates three indirect jobs in France. But what is the real situation? Before detailing this statement, let's clarify the terms:
· Direct employment: Refers to employees directly hired and working for the company being analyzed.
· Indirect employment: Refers to employees of subcontractors or suppliers who are incurred as a result of the expenses and activities of the main business.
With these definitions in mind, let's look at the original statement. This concept, while appealing, deserves a thorough analysis. The concept of indirect employment is linked to the expenses that a company incurs on the national territory, directly affecting the number of jobs that are generated. To better understand this dynamic, let's dive into a comparative analysis of two companies.
Comparative analysis of two companies
Take the case of two hypothetical businesses, both composed of 25 employees and with total annual supplier expenses of €1,000,000. However, their contribution to the local economy varies considerably.
· Company A: With 25 employees, spend 20% of its budget in France, or €200,000
· Company B: With 25 employees, spends 80% of its budget in France, i.e. 800,000 euros
By observing All the profit and loss accounts of manufacturing companies in France since 2016, we observe that for each euro spent, €0.3 is allocated to financing employment.
The impact on employment
• Company A: 200,000€ × 0.3 = 60,000€ dedicated to payroll. If we start from the premise that The average full paid salary in France is €27,550 per year, Company A's expenses would therefore generate €60,000/€27,550 = 2.18 FTE (Full Time Equivalent). If we seek to apply the indirect jobs to direct jobs ratio, here the result would be 2.18/25 =0.09. Only 0.09 indirect jobs generated for 1 direct job.
• Company B: 800,000€ × 0.3 = 240,000€ dedicated to payroll. Using the same average salary, that would be: €240,000/€27,550 = 8.71 FTE. If we seek to apply the indirect jobs to direct jobs ratio, here the result would be 8.71/25 = 0.35. Only 0.35 indirect jobs generated for 1 direct job.
In these two examples, there is a 5 times greater gap between the number of indirect jobs generated by indirect employment between these two companies.
More worrisome, There is a 20 times greater gap between the number of average indirect jobs generated by these enterprises and the commonly accepted 3/1 ratio.
Putting it into perspective
The assertion that one direct job generates three indirect jobs does not take into account the specific characteristics and spending patterns of each company. Certainly, a company with a strong local footprint and investing heavily in French services, products and infrastructures will have a more pronounced impact on indirect employment. But not all businesses are in the same category (see diagram of companies A and B). In reality, the ratio of indirect jobs generated by direct employment will fluctuate according to the purchasing strategy, local partnerships and the company's investment in the local economy, making the 3/1 benchmark difficult to justify and dangerous to use.
The dangers of simplification
Relying on a uniform rule like the “one for three” rule poses risks:
1. Appraisal error: Political and economic decision makers could overestimate the impact of an investment in industry, leading to inadequate policies or incentives.
2. False promises: In a period of economic crisis or the need for recovery, relying on such figures could create false expectations among economic actors and the general public.
3. Undervaluation of certain sectors:Some industrial sectors that have a smaller indirect employment multiplier effect than others could be overlooked, despite their strategic importance or growth potential.
Where could such a major error come from?
“We attribute to numbers the ability to state facts and to attest them while eliminating all doubts and disputes.” Says the statistician Olivier Martin in his book “Figures”. This quote highlights that many methodologies can aim to inflate the number of jobs generated by economic activity for various reasons. This can be explained by a political agenda that is difficult to achieve full employment before the end of a mandate or it may show that a company has a stronger territorial base than it is for a company to benefit from more credits from local actors.
Here we can imagine that the author of the “3/1” rule decided to rely on the distinction that exists between:
· Participate in creating a job: I buy a baguette, I participate in the employment of a baker, expressed in “employment”
· Financing a job: I buy a loaf of bread, I finance 0.001 jobs as a baker, expressed in Full Time Equivalent (FTE)
This nuance is decisive in the results of the studies and the strategies to be implemented because the results can have an extremely large and decisive difference for a territory or a company.
It is essential to adopt a nuanced perspective when it comes to assessing the impact of industrial employment on the French economy. Simplistic claims, while appealing, can be misleading. It is therefore important to always question the methodology underlying any economic assertion.