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France – Sick man of Europe offering hope to recruitment firms

30 July 2014

Despite high unemployment, weak economic growth, and complex labour laws, France is offering an unlikely glimmer of hope to recruitment firms. The Eurozone's second-biggest economy has been a mixed blessing for recruiters in recent years, according to Reuters.

French labour laws and work contracts make it costly to hire and fire employees, increasing the attractiveness of temporary staffing, but overall demand for labour has suffered during the tepid recovery.

However, a recent upswing in demand for industrial workers as the car market rebounds may signal a change in fortune, with analysts pointing to pockets of activity in temporary staffing despite investors' perceptions that France remains the "sick man of Europe".

A government tax credit designed to stimulate employment also looks likely to help.

Jos Versteeg, senior equity analyst at private Dutch bank Theodoor Gilissen, commented: "While France is still not doing very well (overall), the temporary jobs market seems to be recovering.”

As a result, analysts are looking again at Swiss-based Adecco, the world's largest staffing company, and Dutch group Randstad, as France is an important market for both companies.

France is already the biggest market in terms of revenue for Adecco and the second-biggest for Randstad. It is also important for their US rival Manpower, which reported higher second-quarter revenues in France last week but said its performance there had nevertheless been sluggish.

In recent years, Randstad and Adecco have suffered as a result of France's record high unemployment of close to 3.4 million, more than +10% of the workforce, and both have closed branches.

As firms cut costs, temporary staff are the first to go, partly due to the rigid labour laws, but this inflexibility can also translate into good business for the recruiters when things start to pick up.

Between 2000 and 2012, official intentions to hire permanent staff grew by +4%, lower than the +14% rise for temporary placements and a +76% surge for short-term contracts, French Labour Ministry data shows.

A factor in the brightening outlook is the "CICE" government tax credit. Launched in 2013 and sweetened this year, it effectively cuts payroll taxes on the salaries of employees that are at, or just above, the minimum wage, and the subsidy goes straight on to the bottom line of staffing firms.

Some analysts see it helping the recruitment companies for years to come.

Mr Versteeg commented: "The current scheme runs through 2016. But France is full of subsidies, so there is a good chance it will be extended thereafter.”

Some investors, however, remain cautious, with French business activity still shrinking in July, albeit at a slower pace than before.

Frederic Rozier, fund manager at French asset management firm Meeschaert, added: "It's an interesting theme, as the interim staffing business is usually a leading indicator on economic recovery. However, we haven't yet seen a significant impact of the French job tax credit on the results of staffing companies, and now with doubts rising again on the outlook for economic growth in Europe and elsewhere, it might be too early to buy these stocks.”