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France – Labour market reform stuck in a quagmire

11 July 2014

Considered by many to be the current ‘sick man of Europe’, especially in terms of labour market performance, France’s Prime Minister Manuel Valls has announced that he wants to make the French labour market more “supple” and “effective”, reports thelocal.fr.

Mr Valls believes the country needs some major reforms to make the highly regulated labour market more flexible. The PM has even suggested France’s almost sacred 3,000-page labour code could do with simplification.

He has support, notably from France's employers groups, known as the "patronat" and in particular the heads of small and medium businesses, some of whom protested in their underwear this week demanding changes to the “unreadable and incomprehensible” labour code.

Speaking with just his underpants and a T-shirt on, Julien Leclerq, one of the leaders of the protest movement named the Déplumés (featherless) said: "I studied law and I still don’t understand [the labour code]. Companies are not recruiting because they are scared of the labour code. It acts as a real brake on hiring. We are fighting for the government to lower payroll charges, not so we can get a new swimming pool or a new car. It’s for our businesses, so we can create employment.”

Not all economists, especially in France, agree with the Brussels line that France’s labour market needs an overhaul.  

Jean-Claude Barbier from the Sorbonne said to The Local: “Contrary to what you might read in The Economist magazine, France has been making reforms for the last 15 years. It’s just not true to say France’s labour market is inflexible. Yes, there are some parts where reforms can be made but other areas are very flexible.”

Mr Barbier points to last year’s historic deal between employers and trade unions that gave more flexibility to employers, as well as more protection to employees, a key concern of France's unions.

The accord, dubbed the “flexisecurité” agreement, allows employers to cut working hours and salaries during hard times, as well as making the process of laying off staff both less costly and less complicated. As a form of compensation, employees gained more rights, including better health cover and unemployment benefits.

“The main problem is not that the labour market is inflexible, it’s that there’s a problem of inequality and social justice, where some workers have advantages and perks and others don’t,” Mr Barbier added. 

Eric Heyer from the French Economic Observatory goes even further, insisting it is misleading to place all the blame for the record unemployment and struggling economy on the rigid labour market: “Before the economic crisis of 2007, France had 7% unemployment, with the same labour code we have today and the 35-hour week etc., so it’s not to blame for the fact the unemployment is now at 10%. It’s not the labour code that has brought growth to a halt.”

Mr Heyer believes the PM should look towards ending the policy of austerity rather than tackling the labour code. He feels that the current climate of “grogne social” (social discontent), which has seen numerous strikes in recent months, plus the unpopularity of the president and the growing number of rebels within Hollande’s party, means Valls can bang the drum as much as he likes, but in reality little will happen.

Other economists in France are of the same opinion.

Gérard Grunberg from France’s National Centre of Scientific Research commented: “It would be very difficult and complicated for Valls to implement real reforms. I am not sure the government has the strength or the means to implement real reforms.”

“The president is weak, he has no real authority. Manuel Valls has more authority but he’s not the President and it would be difficult for the government to get the votes they would need in parliament,” he added.

As well as taking on the labour code, Mr Valls also wants efforts made to double the number of apprenticeships, standardise part-time work, and look at the issue of “seuils sociaux” (social thresholds), which impose a series of obligations on companies depending on the number of people they employ.

For example, any company with 50 or more staff must have a “comité d’entreprise” (work’s council) and union representatives and sign up to numerous other labour agreements that benefit employees.

Bruno Cautrès from Sciences Po’s Centre of political research (CEVIPOF) Cautres says progress may be made “on these small things” but he believes it's already too late for any major reform of the labour market: “I can’t see anything happening. We are already in the middle of 2014 and in less than two years everyone will be concentrating on the next presidential election.”