Written by Hilary Barnes
Econintersect: France’s President Francois Hollande has chalked up a rare economic policy victory. The country’s employer organisations and three of the five main trade union organisations reached agreement late on January 11 to make the labour market more flexible while improving job security for labour.
The rigidity of the French labour market, especially by making it so difficult and costly to fire labour when times are bad that firms are very reluctant to hire when times are good, is widely regarded as a major impediment to the efficiency of the French economy.
It often is cited as a key reason why unemployment has never dipped below 8 % over the past 20 years (it is now about 10.7%).
Pessimists and optimists
Optimists are hoping that the new agreement, which will be turned into legislation over the next few months, will persuade the rating agencies to allow France to keep its triple A rating.
Pessimists have two worries. The first is that amendments during the parliamentary approval process may undermine the good intentions of the “social partners“.
The second is that that the new legislation will prove a fertile field for litigation where trade unions seek to demonstrate that the new rules are incompatible with existing labour law – it runs to thousands of pages.
There are two principal points in the new agreement as far as the employers are concerned.
The first will make collective dismissals easier and less costly to carry out. However, this will always presuppose agreement between the employer and a majority of a company’s labour force. If the latter do not agree, they will still have recourse to the courts that deal with these issues, where cases are often dragged out for years.
The second introduces a procedure that will allow companies by agreement with the labour force to introduce shorter working hours for periods of up to two years if demand for the company’s products slump.
Any profits from such a procedure must be shared with the employees.
If it turns out in practice that these two points work well and are not subjected to persistent obstruction, it would represent an important improvement on the present situation.
Labour represented on company boards In return for accepting these points, employees gain improved access to information on the state of a company’s financial situation and outlook and for companies with over 10,000 employees world wide or 5,000 in France they will gain the right to choose two non-voting representatives to sit on company supervisory boards.
A major sticking point in the negotiations between the employers and the trade unions was a trade union demand for taxes on businesses that make “excessive” use of short term contracts (fixed term contracts).
Higher tax for short jobs
Ms. Laurence Parisot, head of the largest employer organisation, MEDEF, declared a few days before the agreement was concluded that this issue had brought the negotiations to a dead end.
But finally the employers agreed that firms that employ people on contracts of under one month will be subject to a 3 % point increase in social charges (in effect a wage sum tax) on the contract, with 1.5 % points added for contracts of under three months (but only 0.5 % on seasonal jobs, so Father Christmas jobs in December should be saved).
Among a variety of other points in the agreement is a lower limit of 24 hours a week on part-time jobs, but that will not apply to a home help hired by a private individual or to students under the age of 26, which saves the babysitter situation.
