Proposed Reforms Sustain French Labor Market Divide

President François Hollande refuses to touch protections that make it almost impossible to fire French workers.

French president François Hollande speaks at the International Labor Organization in Geneva, Switzerland, June 11
French president François Hollande speaks at the International Labor Organization in Geneva, Switzerland, June 11 (ILO)

French president François Hollande proposed labor reforms this week that don’t go nearly far enough to revitalize his nation’s sclerotic jobs market.

Among eighteen measures unveiled on Tuesday to encourage hiring are a €4,000 bonus for entrepreneurs that employ their first worker and extending the period during which companies can employ people on a temporary basis to eighteen months.

Temporary work contracts account for 80 percent of the jobs created in France where unemployment has remained stuck at around 10 percent since Hollande took office in 2012.

However, most workers are still on long-term contracts that come with generous benefits and high job security.

Hollande, a socialist who has also angered his left-wing and trade union supporters with tax relief for businesses, is shying away from touching protections that have created a divide between typically older workers who are almost impossible to fire and younger workers who struggle to get a decent job.

Earlier this year, the Organization for Economic Cooperation and Development specifically urged France to simplify and shorten layoff procedures to encourage hiring.

In February, Hollande bypassed parliament and used emergency powers to enact labor reforms that shortened arbitration procedures and opened up protected professions such as pharmacists and notaries.

But excessive regulations and high social security contributions from employers still hinder labor mobility and add to labor costs which, at €34 per hour, far exceed the European average of €23.

Relatively high productivity at least partially justifies the higher costs of French workers but that is no consolation to the millions of French who are out of work.

France’s Inspectorate-General of Finances last year recommended liberalizing entry barriers and fees. Doing so could add .5 percent to economic growth over five years, it said, and create 120,000 jobs.

The OECD also called on France to lower public spending — which, at 57 percent of economic output, is higher than in almost any other country. Specifically, it said France should reduce the tax burden on labor.

Although the French economy is projected to grow 1.1 percent this year and 1.7 percent next year, long-term trends are uninspiring. Annual per capita growth has been below the OECD average for the better part of two decades while unemployment is higher than in most other developed countries.

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