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French Lessons on How to Grow the Middle Class

by Steven Pressman

Aug 19, 2018 | Legal Affairs, Politics

Illustration by 
Edel Rodriguez

As the campaign season enters its final stages, torrents of empty rhetoric and wasted column inches are being devoted to the fate of American middle-class families. Proposals ranging from health saving accounts, student debt forgiveness, even guaranteed minimum income plans have been advanced as silver bullets. Whenever a policy debate in the United States is stuck, the economist in me instinctually looks at examples of how other countries address the problem. On a recent trip to France, I was able to study and measure the impact of government support for French families firsthand.

While most developed nations have seen little change in the size of their middle class since the early 1980s, France and the United States are outliers. The U.S. middle class has done poorly—dropping from 60 percent of all households in the early 1980s to 50 percent in the mid-2010s. In contrast, the size of the middle class in France rose from 60 percent to around 68 percent.

The economic condition of families with children in both countries has also diverged over the past several decades. According to Luxembourg Income Study estimates, the poverty rate for children in two-parent families in the United States in 2010 was 13.7 percent, up from 11.3 percent in 1979. In contrast, the poverty rate for such families in France was 8.2 percent in 2010, down from 8.7 percent in the early 1980s.

These two sets of figures should be related: the larger the fraction of middle-class families, the smaller the fraction of poor families—and vice versa.

The damaging effects of growing up in poverty are well-known. It limits the educational, intellectual, social, and psychological development of children and reduces the income they will earn over their lifetime. It also increases the chance that, as adults, they will resort to crime, engage in other illegal and antisocial behavior, become incarcerated, or rely on the government for economic sustenance.

Numbers, however illuminating, can tell us only so much. They don’t explain why the middle class in France has grown over the past 30-plus years, while the middle class in the United States has declined. Nor do they tell us how France was able to reduce child poverty. What is France doing right and the United States doing so wrong?

The time I spent a short while ago in France with two friends, Guillaume and Stephanie, provided some answers to this question. Both work full-time. They have three young children needing childcare on a regular basis. This let me see what France does to reduce the financial burden on families with children, help parents balance work and family responsibilities, and buttress middle-class families.

Three things are particularly important—paid parental leave, affordable childcare, and how families with children are taxed. Together, these policies promote the employment of parents with children, enabling the French middle class to grow while keeping families with children out of poverty.

All three policies have been expanded in France since the 1980s; all are severely deficient in the United States. Unlike in France, in the United States the financial stress on parents with children has worsened over the past few decades, and government programs to support low-income and middle-income families have been cut back in order to fund large tax cuts for the rich.

Paid parental leave replaces lost wages around the time of birth or adoption. In France, paid leave replaces 100 percent of the average wages earned by women in the three months prior to their taking leave, with a maximum monthly payment of 3,218 euros (nearly $4,000) and a minimum monthly payment of around 275 euros ($330). Eight weeks of paid leave is mandatory; however, paid leave is available for as many as 16 to 34 weeks, depending on the number of existing children and the number of children expected.

Temporarily replacing lost income ensures that a family can maintain its middle-class status, prevents it from going into debt, and enables parents to spend more time with their new child (which has enormous benefits for the child).

The United States is the only developed nation that does not have a national paid leave program, although California, New Jersey, New York, and Rhode Island have state paid leave programs funded via a small payroll tax. The Family and Medical Leave Act of 1993 requires 12 weeks of leave for most mothers of newborn or newly adopted children; but it does not require that they get paid. The best estimates are that 38 percent of U.S. companies offer paid leave to some of their employees—for four weeks, on average.

With little or no financial help, one-quarter of new mothers in the United States are forced to return to work within 10 days of giving birth. Many go into debt and then struggle to repay their loans. Because of the lost income, middle-class families, as well as families slightly above the poverty line, can easily fall into poverty around the birth of a child.

Following the birth of a child, families face two additional problems—a need for childcare and the additional costs of supporting a larger family.

The French have developed a national system of publicly funded childcare programs, including public nursery schools and public childcare centers. Crèches are centers where infants and toddlers under the age of 3 receive care when their mother works. France also has part-time care centers that operate before and after school. There are neighborhood leisure centers to care for children on weekdays when there is no school and when school is out for the summer.

In most places, French day care operates from early in the morning to late at night. Parents can drop off their kids in the morning before work and children can remain there until after work hours. When children reach school age, there are after-school programs following regular school hours.

Not only is childcare readily available in France, it is also subsidized by the government. The cost to a family is around $1.25 an hour per child. This ensures that childcare is affordable rather than a huge financial burden.

In the United States, unlike France, most parents struggle to find reliable childcare. This is not a problem for wealthy families, but it is for everyone else.

Head Start provides education and care for the children of low-income households. There are also some public kindergarten programs. However, due to inadequate government funding, only 42 percent of children who are eligible for Head Start can find a program with an opening for them. The rest are on a waiting list until a slot opens up. Even when available, Head Start and public kindergarten cover only part of the working day. Families still need childcare for the rest of the workday.

If they are lucky, parents can rely on relatives or friends to take care of their children while they work. But in an emergency, or when a child is sick, parents often must leave work or take days off to care for their child. So as well as losing income, they may be putting their job at risk.

Besides the fact that there is a shortage of facilities in the United States, childcare is very expensive. According to the think tank New America, the cost of care in the United States for children 4 years old and younger averages nearly $9,600 per child each year. There are even places where it is nearly twice this amount. In every state, the cost of having two children at a childcare center exceeds the median rent in that state.

The Organization for Economic Cooperation and Development has estimated that the cost of childcare in the United States (after tax benefits) is a whopping 38.1 percent of average U.S. wages. The percentage is much higher for parents with below-average earnings; many U.S. families face childcare costs far exceeding half their wages. If parents earn not much more than the cost of childcare, it will not make sense to work. Making such a decision, however, has important and unforeseen consequences. Staying home to care for children makes it harder to re-enter the labor force in the future, when children get older.

The cost of childcare in France is less than half that in the United States—16.5 percent of average wages, making work financially beneficial. Affordable, available, and high-quality childcare provides incentives for French parents to seek gainful employment, which increases the likelihood that they will earn enough to provide a middle-class life for their children.

Finally, French families with children benefit because they pay much lower taxes than a couple without children earning the same income. The French see children as an investment in the future of their nation, and they recognize that couples without children can afford to pay higher taxes than a couple with children and the same income.

The structure of the French tax system guarantees this outcome. Family tax liabilities in France are computed by adding up household income and then dividing by the size of the household, with each child counting as half an adult. For example, a couple with no children earning $120,000 gets taxed on $60,000. With two children, they are taxed on $40,000 (because their income gets divided by three rather than two).

The tax savings is significant—around $5,500. The result is that French families with two children pay substantially lower taxes each year compared to French families without children. In the United States there is nothing remotely comparable to this. A family with two adults making $120,000 and a family with two adults and two children making $120,000 would owe the same amount to the government in taxes.

Yes, other provisions in the U.S. tax code help families with children—notably the child tax credit. But the benefits from this policy are less than the tax saving for families with children in France that we just saw, and the French have a policy very similar to the child tax credit—child allowances.

The U.S. child tax credit was first introduced in 1998. It gave families a $400 tax break for each child under the age of 17. Originally, families owing nothing in federal income tax received no tax break, and families owing less than $400 in taxes received less than the full $400. Today families receive $1,400 per child, plus any taxes they would have owed the federal government, with a maximum payment to the family of $2,000 per child.

Child allowances first began in France during the 1870s, when a private firm made special payments to its workers with children to support. Today the program is run by the French government so firms cannot seek a cost advantage over their competitors by not paying child allowances. French families receive $2,400 annually for each child, after the first one, if they make less than $50,000. Benefit levels are reduced as income rises above this level. Unlike in the United States, there is no requirement that families owe taxes to qualify for this money.

Overall, the main difference between France and the United States boils down to two words—government policy. The Organization for Economic Cooperation and Development found that child poverty rates based on earnings from employment (before the government steps in) are similar in France and the United States—23.3 percent in the United States versus 24.7 percent in France. After subtracting taxes and adding government benefits, child poverty in the United States was 21 percent; in France it was 5.7 percent. These differences stem from the numerous policies supporting French families with children, while the United States does virtually nothing to assist such families.

These policies do cost money; but it is money well spent. A larger percentage of parents work in France than in the United States. Families earn more income, get to keep more of their income, and give France a larger middle class.

Perhaps the greatest benefit from these policies is that they lower child poverty, with all its costs to the child and his or her future well-being. Substantial research shows that child poverty reduces the earnings of children when they start to work and thereby reduces government tax revenues in the future. This means that these policies help pay for themselves in the long run.

In April, while I was in France, President Trump signed an executive order with the Orwellian title “Reducing Poverty in America.” Its real goal is to force recipients of food assistance (SNAP, formerly Food Stamps), government medical assistance (Medicaid), government housing aid, and other government programs either to work or lose their benefits. Contrary to the president’s claim, this policy will increase poverty in the United States by hurting families with children. Most recipients of the targeted government programs who can work already do so. Problems will arise mainly for single mothers with young children. They will be forced to make a hard choice—work and pay exorbitant childcare costs or lose needed, yet meager, government benefits.

When signing this order, the president said nothing about paid parental leave (a policy championed by his daughter Ivanka), nothing about government policies to make childcare more affordable and available, and nothing about increasing tax benefits for families with children. It is no wonder that child poverty is higher in the United States and that there are proportionately more middle-class families in France.

Steven Pressman is professor of economics at Colorado State University, author of Fifty Major Economists, 3rd edition (Routledge, 2013), and vice president of the Association for Social Economics.

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