While Sarkozy was recently praising the UK for becoming a model for
France, he still has to fill a huge gap to bring the French labour
market to the dynamism of the British one.
The French labour market is legendary for its overall rigidity. Beyond
the existence of a relatively high minimum wage – which contributes to
unemployment of non-qualified workers – and a legally established 35-hour
working week, obstacles to layoffs are one of the main problems
responsible for sluggishness in job creation. It is of utmost
importance, if the unemployment rate was to be cut, as Nicolas Sarkozy
promised it would be, that those rigidities be relaxed.
Instead, even if some legislation moved indeed toward some greater
flexibility, the opportunity to implement true market-oriented reforms
was unfortunately missed since Sarkozy’s election last summer.
For example, the first reform the government should have made was to get
rid of the socialist 35-hour law and to get away from defining a "legal"
working week. Instead, a Bill was enacted on 1 September 2007, which was
limited to exempting extra-working hours of social and fiscal charges.
This Bill was intended to get around the 35-hour law and to give
employees incentives to work more if needed.
Even if some companies and employees find this new Bill useful, its
implementation is proving to be rather complex. According to a survey by
the National Association of Human Resources Managers, more than two
thirds of human resources directors find the Bill a source of new
problems.
Another example is the attempted removal of obstacles to layoffs. Heavy
regulation in France push companies into relying on other, less
restrictive arrangements such as temporary contracts or the use of
interim agencies. Not surprisingly, according to the OECD, temporary
jobs thus turn out to be more frequent in France – 12.4% of all jobs in
2005 – than in the US (4.2%), the UK (5.5%) or Denmark (9.9%).
Moreover, in the context of international competition, companies can
easily choose to locate elsewhere. Heavy labour regulation in France
thus results also in chasing out those that hire.
But instead of freeing the permanent contract model from the
arbitrariness of the Labour Code, the government left unions and
business lobby organisations to define a new mandatory permanent labour
contract model, during a negotiation process labelled "Modernisation of
the labour market."
They proposed for example – in an agreement reached in January 2008 – a
new opportunity to put an end to a permanent contract by mutual decision
between an employee and an employer, and a new temporary contract model.
But this new regulation – already incorporated in the new Bill project
for the modernization of the labour market, presented before the French
Council of Ministers on March 26, 2008 – will come, if approved, on top
of all existing constraints of the Labour Code which remains
fundamentally untouched.
Whilst the new opportunity to negotiate layoffs may well be an option
for some big companies, small enterprises who represent an important
pool of new jobs, can hardly find benefit in it. Among other things, the
cost of layoffs may remain as high as previously: any employee under a
permanent contract could continue to require similar compensations after
sacking as before.
Willingness to reform France’s labour market and reduce unemployment
means that bureaucratic obstacles to layoffs and rigidities of the
Labour Code must be eliminated, allowing greater freedom of contract in
labour matters and a revival in hiring.
Sarkozy’s labour market reforms clearly don’t go far enough in that
regard and risk being ineffective in bringing down unemployment, as
promised.
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