French labour market reform: good intentions, poor delivery

Article originally published by Social Europe on 04 April 2016.

If French politicians are serious about unemployment, they should work on an ambitious, long-term plan rather than a technocratic package

France has not been short of controversial discussions in the past few months, in a context dominated by the terrorist threat. A few days ago, President Hollande closed a painful chapter by dropping the project of constitutional revision that would have made it possible to strip convicted terrorists of French citizenship. Since then, however, the government’s labour market reform project has become the new hot potato. What is dubbed Loi El-Khomri – after the name of the labour minister – is a last-ditch attempt to tackle France’s structural problem with unemployment and demonstrate the government’s reforming credentials before the 2017 national elections. Unfortunately, the government has made a pretty poor start (with thousands on strike last week).

Why the reform?

The reasons why a reform is deemed necessary are several. The big picture is France’s stubbornly high unemployment rate at about 10 per cent. In fairness, French unemployment did not soar after the 2008 crash in the same proportions as other EU countries. However, France started from a solid 8 per cent unemployment rate, a level that has been the norm since the early 1980s. In 1992 already, Francois Mitterrand famously declared: “We have tried everything against unemployment”. Since then the French political class, right or left, has kept trying, in vain, to address France’s number one problem. Subsidised jobs, reduced working time, lower taxes for employers, easier dismissals, activation policies: none of these measures has made a substantial impact. More worryingly, youth and long-term unemployment are particularly high, and labour market dualism is real: 87 per cent of hirings are temporary contracts (2015) and, since 2000, their number has soared while those of permanent contracts have stagnated.
There are two more short-term reasons compelling Hollande to act. On the one hand, he has repeated time and again that he would not run in 2017 if he did not manage to “reverse the unemployment curve”. Yet time is running short, and the latest monthly figures have sent mixed signals at best. On the other hand, the EU has long been asking for a substantial labour market reform in France of the same calibre as Hartz IV. If he wants to keep benefiting from relative fiscal leniency and an accommodating monetary policy, Hollande needs to show some good will.

What is the reform?

The main thrust of the reform is to give more space for company-level negotiation on working time and pay in order to facilitate adjustment to new market environments. Labour legislation and the standards set at sectoral level would become less important. In other words, the bill would greatly advance internal firm flexibility – rather than modify the main parameters of French labour legislation.

In particular, firms would have the possibility to implement a lower rate of overtime pay. Today, overtime is paid at 25 per cent more for the first 8 hours (a week) and 50 per cent more beyond that, with a minimum of 10 per cent in case of a branch-level agreement. In the same spirit, employers and employee representatives could negotiate company-level agreements to adjust working time and pay in order to reach new objectives (accord de développement de l’emploi). These agreements would complement a more ‘defensive’ version (accord de maintien dans l’emploi) created in 2013, which has only been available to large firms running into difficulties. If no agreement can be reached, any trade union representing more than 30 per cent of the employees could request the organisation of a referendum within the firm.

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