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France - Passes significant labour reform

15 May 2013

The French parliament passed a landmark reform of the country's labour code on Tuesday, which the government hopes will help curb rising unemployment and jumpstart the nation's sluggish economy. 

 Negotiated with employers and three trade unions in January, President Francois Hollande has promoted the bill as one of his administration's signature pieces of legislation which will reform the country's notoriously hidebound labour market. The law includes measures to make it easier for workers to change jobs and for companies to fire employees. 

The reform passed through the upper house, with 168 votes for and 3 against. Left-wing lawmakers had sought to derail the law and backed street protests by trade unions opposed to the accord, including the hardline CGT. 

Few expect an instant improvement in the competitiveness of French exporters who have seen sales undercut by cheaper foreign rivals over the past two decades, but many companies say the measures will help them better manage costs. 

Provisions in the act allow companies to temporarily cut workers' salaries, or hours during times of economic difficulty. These measures were inspired by Germany's "Kurzarbeit" rules that have helped its companies preserve margins and retain skills even in tough times. Additional measures are aimed at shortening the time that employees have to contest a layoff and providing a scheme for severance pay.

Several measures are also aimed at making it less daunting for employees to change jobs. Among the measures introduced are credits for training that follow employees throughout their career, regardless of where they work, and the right to take a leave of absence to work at another company.

The law also reforms unemployment insurance, so that someone out of work doesn't risk foregoing significant benefits when taking a job that might pay less than previous work or end up only being temporary. Under the new law, workers will be able to essentially put benefits on hold when they take temporary work, instead of seeing their benefits recalculated each time.

The law will also require all companies to offer and partially pay for supplemental health insurance. Only some jobs currently offer that.

"This is one of those moments in which a great step forward has been made," said Labour Minister Michel Sapin.

The law "is a very good step in a very good direction but it has to just be the first," says Elie Cohen, an economist who has advised Hollande.

"We need a second, a third a fourth and a fifth step."

According to commentators while Hollande's law makes some progress, a lot more needs to be done to really crack open the French labour market. For instance, France has laws prohibiting many shops from opening on Sundays. Workers plan to protest that law on Tuesday, saying they'd like to work Sundays because they get paid double. Meanwhile, companies say they're losing out to online merchants by not opening seven days a week. Economists say such restrictions cost France tremendous revenue, especially from tourists.

French labour contracts are still too complicated and too stringent, many economists say. Access to many jobs, like driving a taxi, is still restricted by special licenses and Byzantine rules. The paperwork necessary to start a business is onerous.

The law comes at a time when Hollande is struggling to fulfil his promise to reverse the rise in unemployment, now at 10.6%, by the end of the year. March jobless claims hit an all-time record 3.225 million. While the country's gross domestic product hasn't risen significantly in a year, and French GDP shrank by 0.2 per cent in the first quarter, the same rate of decline as the final three months of 2012, according to Insee, the national statistics office.

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