Everyone knows that France has an unemployment problem. Around 10 per cent of the population is out of work – a rate that climbs to 25 per cent for those under 25. “We are the only major economy in the European Union that has not defeated mass unemployment for more than three decades,” the country’s new president, Emmanuel Macron, lamented last month.
For many, Macron’s election was the opportunity to change this – to overhaul the complex, protectionist regulatory framework that prevents the creation of new jobs and align France with other modern market economies. The Economist wrote that his rhetoric “represents a shift in thinking that would have been unimaginable even a year ago”.
Yet a closer look at the labour reforms recently unveiled by the French government shows that Macron is falling into the same trap – of fearful compromises – that has paralysed French politics for decades. Sure, some of his measures may go in the right direction, by loosening employment regulations. But there are hardly sufficient in a country where the labour market requires not another patch-up job, but radical liberalisation.
On employment, the new government originally made two core promises. The first related to the decentralisation of the collective bargaining system in favour of firm-level agreements.
France has one of the lowest unionisation rates in Europe – just 11 per cent of the workforce. Yet, along with Austria and Belgium, it has among the highest coverage rate of industry-wide deals on pay and conditions – covering 93 per cent of workers in 2016. This is because, unlike in most other European countries, industry-wide agreements are made compulsory for almost all businesses by the state.
As the French labour economist Pierre Cahuc argues, this collective bargaining at industry level is one of the main problems with France’s labour market. These agreements are a means for established companies and unions to cartelise the labour rules in order to raise barriers to entry, especially for SMEs.
Macron promised to follow countries like Spain and Portugal in reducing the coverage of industry-wide agreements. But while he promised to reinforce firm-level agreements by giving them primacy over industry-level deals, it’s only a minor blow to the unions. The general agreements will still set the rules for minimum wages, working hours, and the use of short-term contracts – meaning that there’s practically nothing important left on which companies can seek concessions. So SMEs are still going to face a huge regulatory burden.
The next issue Macron promised to address is hiring and firing. In the French labour market, the real class struggle is between permanent workers, who benefit from gold-plated dismissal regulations; temporary workers, who gaze enviously at their perks and privileges; and the unemployed, who can’t get any kind of work at all.
French law currently forbids employers to dismiss their employees. Any dismissal must be based on a “real and serious cause”. Employment tribunals rarely interpret these rules in favour of free enterprise: in 2013, 94 percent of employment litigation was started by employees; 80 per cent of those cases related to the dismissal motive; and around three quarters were totally or partially won by the employee.
Fire anyone, in other words, and you risk being sued for a damage payment. And even if you convince the authorities that the dismissal was legal, every dismissed worker who has been with the company for at least a year is entitled to generous redundancy payments (unless there is grave professional misconduct involved). This helps explain why the OECD’s index of employment protection labels the French labour market as one of the most protectionist in the developed world.
Macron promised to change this. But the reform does not fundamentally change the system: “unfairly dismissed employees” are still entitled to their moment in court; permanent workers still get generous protection; and the labour reform actually increases redundancy payments by 25 per cent.
There is also an equally important issue which Macron’s reforms simply ignore: the question of the minimum wage.
As in other major countries in the OECD, unemployment in France is mainly a problem for low-skilled workers. Yet price controls like minimum wage laws (currently €9.76 per hour without employer contributions) require employers to discriminate against potential workers who are not productive enough to reach the price floor imposed by bureaucrats.
This issue was completely ignored during the presidential campaign – a lack of interest which is especially regrettable given that France is one of the OECD countries with the highest ratio between the minimum wage and the median income, meaning it has a greater impact on the labour market.
Macron’s inability to secure radical employment reform is not only economically regrettable – it may also be politically costly. His plans are being billed as revolutionary. But they don’t solve mass unemployment (which they very likely won’t) then it could lead French people to resign themselves to the idea that, as François Mitterand once put it, “everything has been tried against unemployment”.
That, in turn, might increase the credibility of ill-advised, populist measures coming from the far-Left and far-Right – with dramatic consequences not just for France, but the whole of Europe.